Philippe Maystadt, the Belgian Finance Minister, said he would submit proposals for a 'new look' ERM to the European Community this autumn. Reforms are likely to be tied to plans for a single currency, emphasising that for many EC politicians, monetary union is far from dead.
The European currency markets were relatively calm yesterday after the decision to allow all currencies except the mark and Dutch guilder to fluctuate by up to 15 per cent from their central rate. The French franc strengthened slightly as dealers took profits, with the Bank of France holding fire on interest rate cuts. The Bundesbank cut its 'repo' interest rate from 6.95 to 6.8 per cent, seen as signalling a cut in the key discount rate at the end of the month.
Theo Waigel, the German Finance Minister, and Helmut Schlesinger, president of the Bundesbank, visited Paris for talks to cool tensions as French commentators blamed German 'selfishness' for the currency upheaval. Edmond Alphandery, the French finance minister, pointedly awarded the German delegation medals depicting Konrad Adenauer and Charles de Gaulle, the architects of the post-war reconciliation between the countries.
Mr Waigel said at a press conference that Germany was still committed to the calendar for European monetary union as foreseen by the Maastricht European Union treaty. That set 1997 as the first target date for a single currency for countries which meet the necessary economic criteria.
But Mr Waigel's statement that the Maastricht 'objectives and criteria' were unchanged could be seen as little more than window dressing to cool the atmosphere and soothe French feelings after a chaotic weekend, with most economists seeing the Maastricht goals as unattainable.
The reforms planned by Mr Maystadt may include a stronger role for communicating policy through the European Monetary Institute, to be set up by next year. This was suggested by the EC's monetary committee this year. The EMI's main purpose is to prepare for a single currency.
The process of rethinking the EMS will become intertwined with preparation for the second stage of economic and monetary union, due to begin in January.
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