France signals change in its monetary strategy

PRESIDENT Jacques Chirac yesterday opened the way to a revolution in France's strong franc policy and a revision of European single currency strategy by appointing two opponents of present economic policies to the Bank of France's monetary council.

The French leader's decision was a direct challenge to the bank's governor, Mr Jean Claude Trichet, who has been blamed publicly by the President for undermining economic recovery and employment prospects by insisting on high interest rates.

Both new councillors are allied to an anti Maastricht lobby and it will be impossible to ignore what appears to be a signal to Eurosceptics that short term solutions to economic depression are needed to avert industrial unrest.

World money markets will now have to assess whether the independent central bank, which fixes currency policy, will be forced to accept reforms amounting to de facto devaluation.

Mr Chirac has made so many U turns in economic thinking since his election 20 months ago that there will be inevitable confusion over the latest twist which follows a succession of meetings with the German Chancellor, Dr Helmut Kohl, to give assurances that France was ready for sacrifices to keep on course for monetary union.

To honour these promises, the Gaullist led government has frozen public sector pay, cut welfare and sharply reduced government spending on education and defence at a time of near zero growth.

But another sharp rise in unemployment, now standing at well over three million or about 12.7 per cent, and strikes like the lorry drivers' protest, seem to have prompted thinking that, could mean another change of course.

The six member Bank of France monetary policy council has been almost entirely behind the governor on the strong franc since Mr Chirac's election, vetoing any change on traditional rigorous budget controls which have dominated governments of both left land right for most of the past 20 years.

The retirement of two pro Trichet councillors gave Mr Chirac the chance to appoint an industrialist, Mr Pierre Guillen, and a former building society chief, Mr Jean Rene Bernard, to advise on monetary policies.

Because of shifts in thinking by other pro strong franc council members, Mr Trichet is now considered to have only an evens chance of imposing his authority.

Both new members were recommended by the national assembly speaker, Mr Philippe Seguin, who led the anti Maastricht lobby that, picked up 49 per cent of the vote in the 1993 referendum.

Their loyalty to Mr Chirac is unusually strong and, with Mr Seguin, they persuaded the future President to promise job creating inflationary measures during his election campaign.

Even though Mr Chirac then changed his mind to please Germany, Mr Guillen, a former submarine officer, remained his personal "mole" in the employers council, the CNPF, which wants a more supple monetary strategy.

The other new councillor, Mr Bernard, a former ambassador in Holland, worked closely with Mr Chirac in the late President Georges Pompidou's personal team 30 years ago, and is father in law of Mr Pierre Denis, assistant secretary general at the Elysee. Despite two television appearances in the last month, Mr Chirac has not spelled out clearly what the monetary policy is.

Reform would split government parties the senate leader, Mr Rene Monory, opposed the new appointments and there is no coherent strategy on possible devaluation among conservatives.

Right wing divisions became clear after the former president, Mr Valery Giscard d'Estaing, called for the franc's realignment against the dollar, which, he said, was undervalued and largely responsible for France's economic crisis.

But there were also calls for a rethink on parity with the deutschmark and accusations that Germany was forcing France to accept artificially strong exchange rates for the future euro.