Lamont rules out early ERM re-entry

BRITAIN will not rejoin the European Exchange Rate Mechanism for at least two years, Norman Lamont said yesterday. The Chancellor of the Exchequer added that German interest rate policy was still the principal block to Britain's re-entry.

Speaking after a meeting of EC finance ministers in Denmark, he predicted that the UK could rejoin 'in two or three years, maybe longer and certainly not for the moment'.

'We have always said the main problem was the very different policies pursued in Germany and in the UK and elsewhere in Europe,' he said. 'Is it appropriate that a country such as France with high interest rates and rising unemployment should be forced to maintain tight monetary policy.'

Mr Lamont identified the imbalance between Germany and everyone else as the 'fault line' through the ERM. 'We are not alone in that view,' he added.

An official report drawn up by central bank governors and treasury representatives on the events of Black Wednesday, when Britain left the ERM was delivered to the finance ministers.

The analysis, commissioned by the finance ministers, suggests that Germany's policy of high interest rates exacerbated underlying economic problems causing the system to blow. It offers various ideas for ensuring that the system works better in future, such as building-in an early warning system to alert governments to possible crises and ensuring better policy co- ordination.

And in a warning to Britain, it notes that all currencies floating outside the ERM grid have an obligation to work towards the same policy goals as everyone else.

The French delegation in particular was critical of what it complains is a deliberate UK policy of competitive devaluation.

The sense of relief that should have greeted the Danish 'yes' to Maastricht and the Bill's passage through the House of Commons, was dampened yesterday by the economic problems that still overshadow the EC.

While Germany made it clear that there must be no relaxing of the rules for monetary union, Mr Lamont suggested this could be a long time off. 'Europe would be wise to proceed cautiously on these matters. We got a 'yes' in Denmark but only after the question had been put twice and it was a close -run thing in France. It is very important that the political class learns a lesson from this, you cannot run ahead of the people,' he said.