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.Reuse content