The Sterling Crisis: Dealers' attention turns to the franc: French response

NOW that the markets have succeeded in expelling the pound and the Italian lira from the European exchange rate mechanism - and in forcing a devaluation of the Spanish peseta - the spotlight is turning to the French franc.

On the last day of trading before tomorrow's referendum on Maastricht, the Bank of France yesterday resumed its support- buying operation to shore up the currency and succeeded in keeping it around FFr3.42 to the mark, a centime above its floor.

The French currency faced heavy selling pressure on worries about devaluation, but it has yet to face the intensity of selling which forced the pound and lira out of the system. 'We have not seen the madness of the selling of sterling,' Philippe Broussard, of Credit Lyonnais in Paris, said.

Although the volume of trading between francs and marks is less than that between pounds and marks, central bank intervention still needs to be fairly heavy to stop the currency falling. The reason the franc has not suffered to the same degree is that France has earned its credibility in the ERM since the mid-1980s by single-mindedly pursuing a 'franc-fort' policy of high interest rates and fiscal rectitude.

'But last week people were saying that you could not lump the pound with the lira, and look what happened. Now people are saying you cannot lump the franc with the pound', George Magnus, international economist at Warburg Securities, said.

The Bank of France did not help yesterday by suspending the facility which allows French commercial banks to borrow from the central bank over five to 10 days at 10.5 per cent, suggesting that interest rates might be put up. In a panic response, overnight market lending rates rose to between 90 and 100 per cent.

But the facility was later reopened, combined with the announcement of joint measures with the Bundesbank to mop up the money washing around the financial system because of support-buying of the franc. This was received favourably by the market as evidence that the Bundesbank was helping the French defend their currency.

The Germans also appeared to be offering a helping hand when the Bundesbank's vice-president, Hans Tietmeyer, said the franc was 'not threatened' and that it was 'a candidate for revaluation' if the ERM currencies were to be shaken up again in a realignment.

Analysts believe the fate of the ERM may well depend on how the franc fares after tomorrow's vote. Mr Broussard believes there is a 30 per cent chance of a 'no' vote. If the franc comes under heavy selling, it should leave the system rather than devalue,' he said.

'If the franc survives Sunday's result without higher interest rates, then there is a reasonable chance the EC finance ministers will move to reconstitute the ERM,' Mr Magnus said.

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
Child's play: letting young people roam outdoors directly contradicts the current climate
lifeHow much independence should children have?
Arts and Entertainment
Tycoons' text: Warren Buffett and Bill Gates both cite John Brookes' 'Business Adventures' as their favourite book
booksFind out why America's richest men are reading John Brookes
Arts and Entertainment
<p><strong>2008</strong></p>
<p>Troubled actor Robert Downey Jr cements his comeback from drug problems by bagging the lead role in Iron Man. Two further films follow</p>
filmRobert Downey Jr named Hollywood's highest paid actor for second year running
Life and Style
Dale Bolinger arranged to meet the girl via a fetish website
life
Property
Sign here, please: Magna Carta Island
propertyYours for a cool £4m
Life and Style
tech
News
The Commonwealth flag flies outside Westminster Abbey in central London
news
Arts and Entertainment
Struggling actors who scrape a living working in repertory theatres should get paid a 'living wage', Sir Ian McKellen has claimed
theatre
Extras
indybest
News
Skye McCole Bartusiak's mother said she didn't use drink or drugs
peopleActress was known for role in Mel Gibson film The Patriot
Arts and Entertainment
tvWebsite will allow you to watch all 522 shows on-demand
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
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

Graduate Web Developer

£18000 - £28000 Per Annum: Clearwater People Solutions Ltd: Excellent opportun...

Graduate Database Developer (SQL)

£18000 - £28000 Per Annum: Clearwater People Solutions Ltd: Excellent opportun...

Community / Stakeholder Manager - Solar PV

£50000 - £60000 Per Annum: The Green Recruitment Company: The Green Recruitmen...

Senior Marketing Executive (B2B/B2C) - London

£32000 - £35000 per annum + benefits: Ashdown Group: Senior Marketing Executiv...

Day In a Page

Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

The 'scroungers’ fight back

The welfare claimants battling to alter stereotypes
Amazing video shows Nasa 'flame extinguishment experiment' in action

Fireballs in space

Amazing video shows Nasa's 'flame extinguishment experiment' in action
A Bible for billionaires

A Bible for billionaires

Find out why America's richest men are reading John Brookes
Paranoid parenting is on the rise - and our children are suffering because of it

Paranoid parenting is on the rise

And our children are suffering because of it
For sale: Island where the Magna Carta was sealed

Magna Carta Island goes on sale

Yours for a cool £4m
Phone hacking scandal special report: The slide into crime at the 'News of the World'

The hacker's tale: the slide into crime at the 'News of the World'

Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
We flinch, but there are degrees of paedophilia

We flinch, but there are degrees of paedophilia

Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
The truth about conspiracy theories is that some require considering

The truth about conspiracy theories is that some require considering

For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn
Alistair Carmichael: 'The UK as a whole is greater than the sum of its parts'

Alistair Carmichael: 'The UK as a whole is greater than the sum of its parts'

Meet the man who doesn't want to go down in history as the country's last Scottish Secretary
Legoland Windsor's master model-makers reveal the tricks of their trade (including how to stop the kids wrecking your Eiffel Tower)

Meet the people who play with Lego for a living

They are the master builders: Lego's crack team of model-makers, who have just glued down the last of 650,000 bricks as they recreate Paris in Windsor. Susie Mesure goes behind the scenes
The 20 best days out for the summer holidays: From Spitfires to summer ferry sailings

20 best days out for the summer holidays

From summer ferry sailings in Tyne and Wear and adventure days at Bear Grylls Survival Academy to Spitfires at the Imperial War Museum Duxford and bog-snorkelling at the World Alternative Games...
Open-air theatres: If all the world is a stage, then everyone gets in on the act

All the wood’s a stage

Open-air productions are the cue for better box-office receipts, new audiences, more interesting artistic challenges – and a picnic
Rand Paul is a Republican with an eye on the world

Rupert Cornwell: A Republican with an eye on the world

Rand Paul is laying out his presidential stall by taking on his party's disastrous record on foreign policy
Self-preservation society: Pickles are moving from the side of your plate to become the star dish

Self-preservation society

Pickles are moving from the side of your plate to become the star dish
Generation gap opens a career sinkhole

Britons live ever longer, but still society persists in glorifying youth

We are living longer but considered 'past it' younger, the reshuffle suggests. There may be trouble ahead, says DJ Taylor