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.

Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
Have you tried new the Independent Digital Edition apps?
ebooksAn unforgettable anthology of contemporary reportage
premier league
Mario Balotelli celebrates his first Liverpool goal
premier leagueLiverpool striker expressed his opinion about the 5-3 thriller with Leicester - then this happened
people'I hated him during those times'
Britain's shadow chancellor Ed Balls (L) challenges reporter Rob Merrick for the ball during the Labour Party versus the media soccer match,
peopleReporter left bleeding after tackle from shadow Chancellor in annual political football match
Arts and Entertainment
Female fans want more explicit male sex in Game of Thrones, George R R Martin says
tvSpoiler warning: Star of George RR Martin's hit series says viewers have 'not seen the last' of him/her
Dame Vivienne Westwood has been raging pretty much all of her life
peopleMemoir extracts show iconic designer 'felt pressured' into going out with Sex Pistols manager
Life and Style
fashionAlexander Fury's Spring/Summer 2015 London Fashion Week roundup
Arts and Entertainment
Lauryn Hill performing at the O2 Brixton Academy last night
musicSinger was more than 90 minutes late on stage in Brixton show
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
people''Women's rights is too often synonymous with man-hating'
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs General

Head of Marketing and Communications - London - up to £80,000

£70000 - £80000 per annum: Ashdown Group: Group Head of Marketing and Communic...

Nursery Nurse

Negotiable: Randstad Education Manchester: Level 3 Nursery Nurse required for ...

Nursery Nurse

Negotiable: Randstad Education Manchester: L3 Nursery Nurses urgently required...

SEN Teaching Assistant

Negotiable: Randstad Education Manchester: We have a number of schools based S...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam