EC prepares to defend pound come what may

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The Independent Online
EUROPEAN finance ministers have agreed on a policy of unlimited intervention in the currency markets to maintain the parities of the Exchange Rate Mechanism.

With the Bank of England ready for a second week of heavy buying in the markets, the finance ministers, who meet in Bath on Friday, will draw up detailed plans for dealing with the possibility of a 'no' vote in the French referendum on the Maastricht treaty on European union.

The ministers' agreement will allow the Bank of England to draw on Bundesbank cash to buy pounds, so supporting sterling even while it remains above its ERM floor of DM2.7780.

Sterling's continued weakness will not be eased by a poll in Le Parisien newspaper yesterday giving 'no' campaigners 53 per cent, with 47 per cent in favour - the largest majority against so far.

At the informal finance ministers' meeting, France's Michel Sabin will give his assessment of the referendum's outcome and the implications if the French reject Maastricht. With Britain in the EC presidency, Douglas Hurd, the Foreign Secretary, will have to decide whether to call an emergency EC Council meeting if the French vote 'no'.

Officials point out that EC ministers will be gathered at the United Nations in New York immediately after the poll, which takes place on 20 September. Yesterday Downing Street said the Prime Minister had turned down a request to appear in a debate on Maastricht on French television.

Against this tense background, the case for a recall of Parliament will be reviewed by the Labour leader, John Smith, when returns to Westminster on Tuesday.

Pressure is growing within senior ranks of the party for a Westminster debate over the economy and the international outlook. By convention a call for Parliament to reassemble during recess is normally granted, although, in this case John Major might oppose demands for any debate on the economy.

If the Chancellor, Norman Lamont, is forced to raise interest rates and international tension increases, Labour figures believe that a demand for a recall, on both issues, would be irresistible. But any recall must come in the first fortnight of September, before the party conference season.

Frustration is mounting within Labour because the Government's acute economic difficulties have been overshadowed by the crises in the Balkans and Iraq.

Further reports, page 10, page 23, and Business