Clarke pressed to rejoin ERM

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The Independent Online
Kenneth Clarke, the Chancellor, will be strongly pressed by his European partners tomorrow to take Britain back into a revamped Exchange Rate Mechanism, in preparation for joining the single currency.

However, Mr Clarke is certain to resist any such move, and European finance ministers meeting in Verona will acknowledge they have little power to force Britain to rejoin a currency pact against its will.

The idea of establishing a new ERM for those countries which do not join the single currency in the first wave, has been intensively discussed within the EU for almost a year, but will be formally proposed for the first time tomorrow at the Verona meeting.

Most member states believe those countries which do not qualify for EMU, or do not wish to join at the beginning, should agree to join a mini ERM, in order to ensure a stable relationship between the so-called "ins" and "outs". Without a new mechanism to enforce currency stability between "ins" and "outs",or, the "pre-ins", as the European Commission now calls them, the operation of the single market may be severely undermined.

For Britain, to consider re-joining an ERM in the run-up to the next election and prior to any decision to join monetary union is unthinkable. It would cause outrage among the Euro-sceptics who celebrated Britain's departure from the ERM in September 1992. However, Britain has been hoist by its own petard over the issue. For, it was John Major who first insisted, at the Cannes summit in June, that the EU should examine the relationship between the "ins" and the "outs" and the effect it might have on the single market. The setting-up of an ERM is the solution that Mr Major's partners have come up with.

At the Verona meeting, only Sweden and possibly Finland are likely to join Britain in opposing the principle of a new ERM. However, although Germany, France and the European Commission would like to oblige Britain to join, there is general acceptance that to do so would be political unwise, hardening British attitudes against the entire single currency project. Furthermore, the experts concede that there are no legal grounds for insisting that Britain should join.

Asked whether Britain should be forced to join such a pact, Yves Thibault de Silguy, the Economics Commissioner, said all 15 EU members would be expected to act as one "rugby team".

"We do not want one or two members just watching," he said. But Mr de Silguy gave no hint that sanctions could be imposed if Britain remains on the sidelines, suggesting, instead, ways of cajoling Britain into accepting the system.

Outlining the ERM options to be tabled in Verona, Mr de Silguy said one possibility would be a strict system which will be entirely optional. Another idea would an ERM so flexible that even Britain would find it acceptable to join. Commission officials have also canvassed the idea of calling a future ERM something totally different.