The ERM Crisis: Brussels: EC puts brave face on panic

THE EUROPEAN Community yesterday put on a brave face despite the crisis in the financial markets and the threat to monetary co-operation.

What appeared to be the dying hours of the exchange rate mechanism of the European Monetary System passed in near-silence as officials refused to comment, afraid of exacerbating the situation. There was a sense of barely contained panic in Brussels, where the European institutions were on the verge of closing for the summer holidays.

'The European Monetary System is a fundamental element and vital to Europe,' Jean-Luc Dehaene, Belgium's Prime Minister, said. Belgium holds the presidency of the EC.

Mr Dehaene's line was sanguine. 'The EMS has its own rules and these rules must be and have been respected,' he said. When asked why in this case some currencies had fallen to the bottom of the currency grid, he said: 'The floor is also part of the system.' It was a surreal performance.

The EMS is one of the foundation stones of the Community and in particular of the ambitious project for economic and monetary union laid down at the Maastricht summit in 1991.

The Treaty on European Union lists conditions for participating in a single currency, one of which is 'the observance of the normal fluctuation margins provided for by the exchange rate mechanism, for at least two years, without devaluing against the currency of any other member state.'

The EC's Council of Ministers must decide by not later than the end of 1996 whether a majority of states has matched this and three other criteria before it decides to embark on a single currency.

But the detail of stage two of monetary union - which is due to start in January 1994 - now seems overshadowed by the damage done to confidence, the lack of co-operation shown by the Bundesbank and the obvious disagreements about how to respond to the crisis. The problems over the last year have heaped doubt on the viability of the project.

The difficulties with using the EMS as a launch pad for monetary unity have long been noted, even by its supporters.

'It would be absurd to think of this practical and extremely useful arrangement as being a step towards a European monetary union,' wrote Robert Marjolin, a distinguished French economist and one of the founding fathers of the European Community, as long ago as 1986.

Partly for this reason, the EC's monetary committee recently underlined the necessity of regular realignments. But it resisted any significant reform of the system. This now seems unavoidable.

Much of the damage, however, has already been done. The likelihood is that economic co-operation across a wide range of activities will be threatened by the ebbing of monetary co-operation. Later this year, the Community had planned to launch a co- ordinated attack on unemployment and a package of measures to revive growth.

Instead, pressure will now build up for a further easing of German interest rates.

The single market, the crowning achievement of the last decade, will have problems with currency instability, since it will make exporters and importers uncertain of future rates. More important, if the crisis in the ERM damages political confidence, and if it makes member states more defensive, then it will be much harder to enforce the tough rules that are essential for its operation.

The longer-term political damage may be even more severe. Since the final stages of the negotiation of the Maastricht treaty, any sense of common purpose and leadership in the European Community has started to evaporate.

The Danish referendum, the 'petit oui' in France, rows over trade, structural funds and the war in the former Yugoslavia have all sapped the strength of the EC. That is why Jacques Delors, the Commission's president, has planned new initiatives on jobs and growth, and why some member states wanted a special summit to relaunch the Community.

Instead, the future seems to hold the prospect only of months more of temporising, defensive actions and gradual retreats.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
News
peopleIt seems you can't silence Katie Hopkins, even on Christmas Day...
Arts and Entertainment
Left to right: Stanley Tucci, Sophie Grabol and Christopher Eccleston in ‘Fortitude’
tvSo Sky Atlantic arrived in Iceland to film their new and supposedly snow-bound series 'Fortitude'...
Arts and Entertainment
Call The Midwife: Miranda Hart as Chummy
tvCall the Midwife Christmas Special
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Account Manager

£20000 - £35000 per annum: Recruitment Genius: This full service social media ...

Recruitment Genius: Data Analyst - Online Marketing

£24000 - £35000 per annum: Recruitment Genius: We are 'Changemakers in retail'...

Austen Lloyd: Senior Residential Conveyancer

Very Competitive: Austen Lloyd: Senior Conveyancer - South West We are see...

Austen Lloyd: Residential / Commercial Property Solicitor

Excellent Salary: Austen Lloyd: DORSET MARKET TOWN - SENIOR PROPERTY SOLICITOR...

Day In a Page

Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there