Despite soothing noises from some participants, the Majorca summit also failed in its principal task - mapping a clear route to reform of EU institutions next year.
Leaders - and, most importantly, the French President and German Chancellor - insisted that there would be no backsliding on the 1999 deadline for merging the franc, Deutschmark and other willing and eligible European currencies. But they failed to address the specific concerns raised last week by, among others, senior German politicians and bankers.
Quite to the contrary, two senior German figures yesterday reopened the entire debate. Hans Tietmeyer, president of the German central bank, said the timing of a single currency was less important than ensuring it was built on solid foundations. The German Finance Minister, Theo Waigel, who began the controversy last week, said he and Chancellor Helmut Kohl agreed on the central point: a European currency must be as strong as the mark.
"It is clear, and the Chancellor also agrees, that a single European currency must be as hard as the mark," Mr Waigel said.
In Majorca, John Major's voice of caution tuned with the times. His warning about "dividing Europe in two" if some countries join monetary union while others are left outside, sounded like sound practical sense. Although the Prime Minister's remarks were clearly directed at a domestic political audience, they were heeded - perhaps more than ever before - by his European partners.
Confidence among ordinary Europeans in the idea of a single currency can only have been further dented by the evident disarray among leaders over what direction the union should take politically in future years. Majorca was intended to be a summit where EU leaders started to grapple with the massive problems of adapting their policies and institutions to cope with the expansion of the Union to up to 30 members, once East and Central Europeans join up.
Instead, the leaders appeared confused about which path to take. All the crucial questions of how the Union will tackle next year's inter-governmental conference (IGC) were deferred until the next EU summit, in Madrid in December.
Felipe Gonzalez, Prime Minister of Spain, and host at Majorca, had hoped that the summit would at least decide an IGC timetable but there was deep division even over this. Chancellor Kohl suggested the IGC should run on into 1997, while Jacques Chirac, the French President, said that it should be short and conclude before the end of 1996.
In the confusion, Mr Major was confident enough to say that he was "relaxed" about the IGC timetable - which if extended into 1997, could clash with the next British election.
In Majorca, Chancellor Kohl distanced himself from last week's remarks by Mr Waigel,who had called into doubt Italy's readiness to join a single currency.
However, the extent of concern about German views re-emerged when a spokesman for Jacques Santer, President of the European Commission, said bluntly that "no one minister, no one country" should be able to dictate how monetary union would work.
The currency markets are divided over what is likely to happen. Some analysts take the view that the Germans are in the process of hardening the conditions for entry, so that if monetary union does proceed it will exclude even founder members of the European Community like Italy and Belgium. Others argue that politics will in the end prevail and the Germans will ease the conditions set out in the Maastricht Treaty so as not to create an economic apartheid within the union.
One early sign about the outcome of this struggle within Germany will be whether there is any covert or over-support for the lira. As Avinash Persaud, currency strategist at JP Morgan, puts it, "[Lamberto] Dini [the Italian Prime Minister] asked for help; will there be any?"
But dealers' attention will be focused initially on the dollar and the meeting of the US Federal Reserve tomorrow. In July the Fed cut interest rates after successive increases in 1994 and the start of 1995. Many analysts pointed out that the Fed seldom cut rates just once.
A decision by the Fed to cut rates "would in one fell swoop destroy the credibility" of the summer's highly successful campaign of intervention by central banks to boost the dollar and weaken the yen.Reuse content