Summit fails to bolster EU currencies

Currency markets continued to be nervous yesterday in the wake of the inconclusive summit of European leaders in Majorca. A firmer dollar brought no relief to the weaker European currencies, which continued to be shunned.

Speeches by the German finance minister and the Bundesbank president reinforced the perception that the Germans were now committed to a hardline interpretation of the Maastricht eligibility criteria for monetary union.

The effect would be to exclude all but a few members of the European Union by the end of the decade.

In Berlin, Theo Waigel, the German finance minister, who put the cat among the pigeons last week by saying that Italy would not be ready to take part in a single currency by 1999, said that "stability comes before dates.

Without clear observance of the Maastricht Treaty's stability and convergence criteria, no country can take part in the currency union".

In Frankfurt, Hans Tietmeyer, the president of the Bundesbank, said that "despite the basic Maastricht Treaty, much is still unclear at present". He said political compromises aimed at bringing about a single currency carried a high risk for inflation.

With new doubts about the feasibility of monetary union by the end of the century, the "story of selling the German mark because it won't be around looks misplaced and overdone," said Neil MacKinnon, currency strategist at Citibank.

As a result, the soft European currencies remained on the floor despite the dollar gaining ground on Friday. This would normally have the effect of supporting weaker European currencies, but the Italian lira closed at 1131 against the DM compared with 1136 on Friday.

The dollar ended the day in spitting distance of 100 yen, up a yen on its Friday close, and strengthening by a pfennig against the German mark to close in London at 1.4285

Although it lost earlier gains made in Tokyo which had taken it back up above101, dealers remained wary of the possibility of renewed central bank intervention to weaken the yen.

Stronger than expected sales of existing homes in the US also helped to support the dollar.