Waigel denies pushing Bundesbank

THEO WAIGEL, the German Finance Minister, yesterday categorically denied that the Bundesbank had in any way bowed to political pressure or compromised its independence by reducing interest rates on Monday.

Speaking in Strasbourg, he denied that the action was designed to soften French opinion ahead of Sunday's referendum.

'It was a logical decision in line with the Bundesbank's thinking. It was not a U-turn. The bank has not changed direction and any comments to this effect are wrong,' he said.

He said the 'positive effects' of the decision would be felt in France as well as throughout Europe.

Mr Waigel insisted that though the German government had, of necessity, been involved in discussions, 'it was not finance ministers who took the decision; we were only able to confirm what the Bundesbank did'.

His remarks were clearly designed to answer domestic critics who have argued that the independent central bank came under unprecedented political pressure to act. Mr Waigel was reported to have accompanied Helmut Kohl, the German Chancellor, on a secret visit to the Bundesbank last Friday.

'The cut in rates was in line with (Bundesbank president) Helmut Schlesinger's public pronouncements,' Mr Waigel stressed. 'He said that in the case of a realignment there should then be room to plan for a reduction in interest rates.'

Mr Waigel added that when the European Monetary System was last realigned, in 1987, Germany similarly cut its rates.

Editorial writers in Germany said the decision raised serious doubts about the independence of a proposed European central bank. 'The Bundesbank has surrendered,' the liberal Suddeutsche Zeitung said. The conservative Die Welt said: 'This is a golden day for the stock markets - but what a black day for the Bundesbank.'

The Frankfurter Allgemeine Zeitung said the way the rate cut decision had been made gave the impression that the Bundesbank had been reduced to the servant of the politicians.

But financial analysts in Frankfurt were generally more sanguine about the situation than the newspapers. 'Having slept on it, the impression that the Bundesbank has surrendered or lost its independence seems premature,' Hans Jaeckel, economist at DRI-McGraw Hill, said.

'A few weeks from now the view may well be that the Bundesbank's position has become even stronger as it has assumed the full role and international responsibility expected of Europe's dominant central bank.'

Speaking before the end of trading yesterday when pressure intensified on the pound, Mr Waigel said he saw no reason why sterling should be devalued.

The economic and political factors underpinning the pound ensured that although it was now the weakest currency in the EMS, it would not come under the same pressure as the lira, he said.

He added: 'There is no evidence that there will need to be another EMS realignment; all members are committed to maintaining current exchange rates.

'I do not believe that currency fluctuations in the last couple of days are any real indication of longer-term trends. The tensions that existed last week have been greatly reduced, if not eliminated.'

FRANKFURT - The Bundesbank last night denied newspaper reports that Mr Schlesinger was seeking a broader realignment of European currencies, Reuter reports.

The Wall Street Journal and Handelsblatt said in a statement ahead of publication of an interview today that the Bundesbank president had indicated the problems of the EMS had not been solved by Sunday's change in the lira's parity.

A Bundesbank spokesman said: 'The text was not authorised, he did not say that and it was not what he intended to say.'

BERLIN - As police reported continuing attacks on foreigners' hostels in Germany, Jurgen Mollemann, the Economics Minister, yesterday warned that eastern Germany was now facing a total collapse of its social and economic system from which it would take a decade to recover, writes Adrian Bridge.

Speaking in Bonn, Mr Mollemann said the Bundesbank's decision to cut its interest rates on Monday would not be enough to stimulate recovery in the east. He added that no further interest rate cuts could be expected until public spending had been curbed and agreement reached on a general wage freeze.

Commentary, page 27

(Photograph omitted)