New system sought to curb speculation
Germany, France and Japan called yesterday for a new international exchange rate system to limit currency speculation of the kind that threw the Brazilian economy into crisis this week. Meeting in Frankfurt at a conference of European and Asian finance ministers (Asem), the German Finance Minister, Mr Oskar Lafontaine, and his Japanese counterpart, Mr Kiichi Miyazawa, demanded more rigorous supervision of the financial markets and agreed to take joint action in the markets when necessary.
Mr Miyazawa later issued an almost identical statement with the French Finance Minister, Mr Dominique Strauss-Kahn. Mr Strauss-Kahn and Mr Lafontaine called this week for "general guidelines" covering exchange rates between the dollar, the yen and the euro but both men insist that they do not advocate fixed rates.
"Capital is there for investment in the real economy and not for the creation of speculative bubbles," Mr. Lafontaine said in his opening address to the 25 finance ministers.
The meeting opened under the shadow of events in Brazil but the flotation of the real and gains in the Brazilian stock exchange during the afternoon lifted the spirits of the finance ministers. Mr Lafontaine said that no national economy could survive severe onslaughts from financial speculators and that political leaders must ensure that it would no longer be possible for large flows of capital to stream into a country one day and flow out the next.
"Europe and Asia, as important world economic blocs, must work together in the future and intensify co-operation," he said.
European Union commissioner, Mr Yves Thibault de Silguy, reacted sceptically to Mr Lafontaine's suggestion, saying that he was in favour of stable exchange rates but expressing doubts as to whether they could be ordained by politicians. The most effective way to ensure exchange rate stability was to reduce the economic differences between countries, he said.
Mr Martin Cullen, Minister of State at the Department of Finance, said that any measures to bring stability to the financial markets would be welcome but added that currency alignment was no guarantee of avoiding economic crisis.
"A lot of this stems from your own, internal policies. The bedrock there is very much the internal policy criteria that exist, so there are a range of issues there that means that just because you align in a particular way, you're going to be protected," he said.