'Little Europe' may proceed without UK

HELMUT KOHL has told John Major that the future of the Maastricht treaty on European union lies in British hands. The German Chancellor has also underlined that should London fail to ratify, a limited number of European countries would press on with key aspects of economic and political union at an even faster pace than envisaged at Maastricht.

Mr Kohl explained Germany's concerns, which he said are shared by others, during a recent telephone call to Mr Major, according to government sources in Bonn. It was one of several discussions the Chancellor has had with European leaders in the past few days, in an effort to 'regain the initiative', as one aide said.

Jacques Delors said yesterday the European Commission was already studying plans for either a wholesale reform of the European Monetary System (EMS) or a quick move towards monetary union by a minority of the European Community's members.

'We're working on it already, but it's not really the moment to put forward proposals,' the Commission President told a conference in Brussels. A German government spokesman denied the existence of any plan for a 'small Europe', comprising Germany, France and the Benelux countries. He said Bonn wanted ratification of the Maastricht treaties to go ahead in all EC states. But French and German sources said that 'contingency provisions' were rapidly taking shape for a slimmed-down Europe, because of British opposition to Maastricht.

The crisis in the EMS has added to pressure for progress towards monetary union in those countries that are tied to Germany. EC finance ministers will discuss the system in Brussels on Monday.

The crisis eased slightly yesterday as a sixth consecutive day of support-buying by the Bank of France and the German Bundesbank relieved pressure on the embattled French franc.

Currency dealers conceded that the central banks may have staved off the immediate danger of a franc devaluation, which would almost certainly have heralded the collapse of the European exchange rate mechanism (ERM). But they warned that speculative pressure could quickly flare up again.

The markets are becoming convinced that the Bundesbank is as committed to defending the ERM and the franc's place in it as is the Bank of France. They also believe that the link between the mark and the franc in the ERM may be tightened further to emphasise the central banks' resolve.

A 'mini-Europe' currency union would be a legal minefield and would face political obstacles in Germany. However market developments are already creating a two- speed Europe. Belgium and the Netherlands - members of the 'core' - trimmed their interest rates yesterday in response to the inflow of capital.

But the countries in the 'periphery' are weakening. Britain and Italy are suspended from the ERM and Greece is not a member. Portugal and Ireland yesterday tightened restrictions on capital movements to ease pressure on their currencies, after a similiar move by Spain. EC members are supposed to be lifting such barriers and Commission officials are worried that these measures may harm the single market, due next year.