Lira falters on talk of EMU delays

The sensitivity of the markets to any adverse news about EMU was exposed yesterday when the mark climbed to a four-month high against the lira following claims by Klaus Dieter Kuehbacher, a Bundesbank council member, that the introduction of the single currency may have to be delayed.

Mr Kuehbacher said: "If I interpret the criteria verbatim, as Finance Minister Theo Waigel has always demanded... delay is the only consequence, unless the federal government still manages to limit the deficit to 3 per cent of GDP [and of that] in view of the current economic developments I have my doubts." His comments followed Monday's reiteration by Mr Waigel that meeting the deficit criteria was more important than the EMU timetable.

The lira fell yesterday to its lowest level against the mark since rejoining the exchange rate mechanism in November last year, ending the day at 1005.8 against the mark. The peseta also suffered from the concerns about a delay to EMU. The Bank of Spain and the Bank of Italy intervened during the day to sell marks. European bonds weakened, with Italian and Spanish bonds taking most of the strain. The moves were on a day when Italy became the first country to issue a euro denominated eurobond, raising pounds 720m.

Analysts said the markets had become highly sensitive about EMU delays. Alison Cottrell of Paine Webber said: "None of the fundamentals has changed compared to, say, a week ago. It's just that the taboos against talking about a delay seem to have dropped. The German press are discussing delays. So the markets are prepared to interpret every piece of news in that light."

Stephen King of HSBC James Capel said: "Mr Waigel didn't say anything new this week. The only significance of his remarks is that he is still prepared to make them at a time when he knows the markets are jittery."

Other analysts shrugged off the importance of remarks made by Bundesbank council members. Thomas Rayner of Societe Generale Strauss Turnbull said: "Kuehbacher's comments are forthright, but the Buba guys can say what they like - it's down to the politicians to make the decision."

Meanwhile the Bundesbank yesterday appeared to support the idea that the circumstances of reunification should exempt Germany from the Maastricht debt criteria of 60 per cent of GDP, which it is bound to fail in 1997. New figures showed German debt has more than doubled since 1989 to 2,135 million marks. But analysts said that special pleading to relax the debt criteria for Germany should not be interpreted as the precursor for a German-led easing of the Maastricht deficit test of 3 per cent.