The German Finance Minister, Theo Waigel, yesterday underlined the importance of keeping to existing plans. 'The timing of the second stage of monetary union, with the introduction of the European Monetary Institute but still independent currencies, remains intact,' he said.
Germany is likely to resist any assault on the Maastricht plan for a single currency, which is very much a German creation. But the terms on which it will take place have been thrown into confusion by the EMS debacle, and a wide- ranging debate has opened up over how to link stage two with the return of exchange rate stability.
Belgium, which holds the EC presidency, is preparing its own proposals for the autumn to reform the EMS. These are thought to include using the European Monetary Institute, to be established from 1 January 1994, to co-ordinate intervention in the foreign exchange markets and monetary policy.
So far the role of the EMI has been sketchy and stage two of European monetary union has been ill-defined. The crisis in the EMS may lead to it becoming much more of a bridge between the management of floating rates and fixed rates, due to come into existence by 1999 at the latest.
The British government has resuscitated a proposal for a 'hard ecu' to form the core of a revived EMS. It will be fiercely resisted by Germany and by the EC Commission but may find support elsewhere.
Britain has revived the idea because of fears that in the vacuum left by the evaporation of the exchange rate mechanism last weekend some countries may try to push ahead with a 'hard-core' monetary union.
The hard ecu would be the 13th member of the EMS during stage two. The European currency unit that exists today is purely a basket of currencies. The aim is to build another anchor for the system alongside the German mark. If the markets accepted it the ecu could evolve into a European single currency.
The hard ecu idea was first launched by a group of European economists in the 'All Saints Day Manifesto' of 1975. It was used by Britain before the Maastricht treaty in an attempt to pre- empt Jacques Delors' plan for a staged approach to monetary union.
The idea was decisively rejected in the Maastricht negotiations but may have improved prospects if the alternative is a mark zone from which some of Europe's key countries were excluded. Spain was sympathetic in 1991 and came up with similiar proposals. France may also be interested. The idea was, however, fiercely attacked by the Bundesbank and will be again.
The revived plan is likely to come from John Major, who was involved in the original strategy when he was Chancellor. But it is only one of several possible directions that the debate over the EMS could take.
There is pressure from some smaller EC states for more rapid movement to form a 'mini-Europe' monetary union. The Netherlands established a bilateral relationship with the mark after wide bands were introduced for all other currencies a week ago. Belgium, Luxembourg and Denmark have pushed for the same, which would in effect reconstitute the old EMS 'hard core'.
The French government has signalled that it wants to keep to its narrow bands in the EMS, as have Belgium and Denmark, by keeping interest rates high. But their resolve will be tested this week, as markets put on pressure for interest rate cuts.
The Commission of the EC is also manoeuvring to re-establish its credibility. Meeting on Friday, it said it would push ahead with plans to draw up economic guidelines for Europe, and an assessment of progress towards monetary union.
The Commission will fight against any plans that dilute the strength of EC commitment to a single currency, including Mr Major's hard ecu proposal.Reuse content