TWO Bundesbank council members said yesterday they believed fears of market tension in the run-up to European monetary union could be exaggerated, but one warned the deutschmark could come under pressure.

Mr Olaf Sievert, president of the regional central bank in the east German city of Leipzig, said that although he expected the two years before the euro's launch in 1999 to be difficult, extreme currency market tension was not likely to be a problem.

Growing consensus in financial markets that EMU would start on time in 1999 meant that any speculation was more likely to be "stabilising speculation, and not destabilising speculation".

His view was backed by fellow Bundesbank council member Mr Helmut Hesse, head of the regional central bank based in Hamburg, who said "the current expectations ... do not point to notable fluctuations".

But Mr Hesse warned the Dmark could see some weakness in the run-up to the 1999 start of EMU, as some investors might switch holdings into other currencies.

On domestic issues, Mr Sievert said the Bundesbank would have no grounds to raise interest rates any time soon and might even have scope to lower them further this economic cycle