ERM Crisis: Business as usual, claims Bonn: Germany

Turning a deaf ear to the stinging criticism emerging from France in particular, Germany struggled yesterday to put on its European business- as-usual face. Klaus Kinkel, the Foreign Minister, said the agreement to widen the ERM fluctuation band 'gives a new credibility to the system in view of the current situation'.

Stating that the different conditions determining each member state's monetary policies was now better taken account of, he emphasised that the second stage of European monetary union 'will take place as planned from January 1994'.

Gunter Rexrodt, the Economics Minister, described the outcome of the Brussels decision as a 'pause for breath on the road to European monetary union. The goal itself, however, is not endangered.'

Theo Waigel, the Finance Minister, declared himself 'very pleased' with the semi-floating ERM solution, and emphasised Germany's determination to hold fast to the Maastricht goal of monetary union. He also underlined the importance of the EC remaining a zone of monetary stability. 'Close exchange rate cooperation will stay at the centre of our efforts,' he said.

Both Mr Waigel and Helmut Schlesinger, the president of the Bundesbank, described the Brussels decision as a 'liberating cut', which would allow the Bundesbank to pursue its policy of cautious interest rate cuts based on domestic economic conditions, unaffected by external pressures.

Mr Schlesinger said the Bundesbank spent DM30bn last Friday alone on supporting weak currencies under speculative attack, notably the French franc.

Despite the best efforts at a coordinated 'all-is-well' line from the government, cracks were already appearing yesterday in the facade. Jans- Jurgen Koebnick, a member of the Bunsdesbank's central council, described the semi-floating ERM as an 'undoubted set-back for EMU'. Contradicting Mr Waigel, he said that there now exists a danger of competitive devaluations among the EC countries within the wide bands.

Mr Waigel's statement that member countries intend rapidly to tie their currencies back into narrow bands was met with disbelief by economists. 'One will need clear signs of recovery in Europe and much closer monetary policy between countries before linking up again makes sense. The Bundesbank will need to have its rates well down,' one said.