Maastricht: Germany seeks to defuse row: Bundesbank stance on sterling

BERLIN - The row between Germany and Britain over who bore responsibility for the sterling crisis eclipsed Chancellor Helmut Kohl's celebration of 10 years in power yesterday. The Chancellor himself did not comment on the dispute with London, but his Foreign Minister, Klaus Kinkel, called for 'calm' on all sides.

The German Bundesbank sought to defuse the uproar over the publication of its interpretation of the events leading up to the devaluation of the British pound, but stopped well short of issuing a full-blown apology. Officials at the bank's Frankfurt headquarters stressed that leaked remarks by its president, Helmut Schlesinger, defending its role during the sterling crisis two weeks ago had never been intended for the press. 'If misunderstandings have arisen as a result of the circulation of this information, that is certainly not in our interests,' said the bank, adding that it now wished to re-establish 'trusting' relationships with its European partners.

Appearing to contradict the Bundesbank's own statement, the Foreign Ministry said that the leaking of Mr Schlesinger's remarks to the British press could only have come about with the consent of Frankfurt.

Some sources in Frankfurt expressed surprise at the scale of British criticism of Mr Schlesinger's remarks, which were given to the British press by the German embassy in London on Wednesday. 'There was nothing confidential in Mr Schlesinger's statement,' said one source. 'It was simply intended as an explanation of the Bundesbank's actions during the sterling crisis to be used by the London embassy to help defend itself against British criticism. We really cannot understand what all the fuss is about.'

Finance Ministry officials in Bonn rallied to the support of the Bundesbank, rejecting British claims that the bank had deliberately undermined sterling prior to its withdrawal from the European exchange rate mechanism (ERM) two weeks ago. 'The power of Mr Schlesinger has been greatly exaggerated,' said one ministry source. 'He cannot destroy currencies alone. The markets determine these things, and their decisions are based on underlying economic realities.'

Whatever the technicalities, German government officials were anxious to limit any further damage to relations, and emphasised the need for both sides to look ahead rather than dwell on the bruising past weeks.

'We must not let movements in the currency markets lead to great rift between us,' said a Foreign Ministry source, who said the contents of Mr Schlesinger's statement had been discussed in talks between Mr Kinkel and Douglas Hurd, the Foreign Secretary, in Bonn on Wednesday. 'The German ambassador in London was acting in good faith and simply wanted to help clarify the Bundesbank's position. Given the extent to which we have been attacked, it was not unreasonable for him to want the means to defend himself. It is in nobody's interest to cause lasting damage and neither side should seek to lay blame on the other.'