Letter: Afraid to let go of the status quo

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Sir: As European financial markets brace themselves for the results of France's referendum on the Maastricht treaty on 20 September, an unfortunate anniversary comes to mind.

On Monday 21 September we will presumably have the results of the French vote, with far-reaching implications for European plans for economic and monetary union, and also for the exchange rate mechanism. Monday 21 September 1931 was the date Britain abandoned the Gold Standard, following which sterling sank like a stone. One interesting factor in the UK decision, albeit a small one, was France's earlier sale of sterling for gold, in protest at Britain's policy in Europe.

The political situation today suggests a different outcome for European currencies, even if the French say 'Non'. European governments have too big a stake in the financial status quo to abandon it lightly - certainly the French, and more recently the British Government too. Currency policy is completely centred on maintaining currency policy, otherwise known as 'hanging on', for fear of worse turmoil should there be any policy changes.

That is why we have seen EC finance ministers threaten to reacquaint currency markets with the mysteries of the Basle-Nyborg agreement which mobilises central bank funds to defend ERM parities.

Perhaps this weekend's meeting of these ministers in Bath will lead to a Bath-Basle-Nyborg Accord, the first line of which is likely to be 'We cannot see our way to doing anything which will make matters significantly better.' Unfortunately, they are probably right.

Yours faithfully,


Chief Economist

Treasury Division

Hill Samuel Bank

London, EC2