THE Bundesbank president, Mr Hans Tietmeyer, has said world financial markets, quick to discover flaws in policy decisions, would penalise the planned single European currency if entry criteria were weakened.
Echoing his speech to the Institute of European Affairs in Dublin last month, Mr Tietmeyer told the world Forex 96 conference he was "convinced that any softening of the criteria would be ruthlessly penalised by the markets".
He added: "They would then undoubtedly demand a risk premium for any investment in the euro."
Mr Jim Power, chief economist at Bank of Ireland Treasury, said the speech had little impact on the markets. "Convergence trades and the market belief that monetary union will go ahead will remain for the forseeable future," he said. "However, as the year progresses it will become obvious that the EU forecasts earlier this week were overly optimistic and his theory could be severely tested.
The German Finance Minister Mr Theo Waigel, also said yesterday on Friday the government's budget for 1997 and its savings programme would ensure that Germany met the fiscal criteria for entry into European Economic and Monetary Union (EMU).
Mr Tietmeyer said the Maastricht Treaty "takes advantage, in a sense, of the financial markets" by making them participate in the selection of countries for EMU membership and expressing their opinion on the worthiness of membership criteria.
"The markets' verdicts may sometimes seem to be implacable and pitiless, but at the same time, they are incorruptible and free from unrealistic wishful thinking," Mr Tietmeyer said.
If the criteria were to be weakened, the planned European Central Bank "would have to struggle for a long time to make good the loss of confidence suffered at that currency's birth - if such compensation were possible at all".
Meanwhile, record imports pushed the US trade gap up 27 per cent to $8.92 billion in March from a revised $7.04 billion shortfall in February, the Commerce Department said yesterday.
Despite improvements in trade with several countries, including China and Mexico, overall imports in March were up 1.7 per cent to $77.72 billion, while exports declined 0.8 per cent to $68.8 billion.
The resulting monthly deficit was higher than anticipated by Wall Street economists, who had forecast an $8.4 billion gap for March.
"The trade deficit is very close to expectations. Nevertheless, I'm still disappointed in the growth of US exports," said Mr John Lonski, senior economist at Moody's Investors Service Inc. The politically sensitive deficit with China fell 25.5 per cent in March to $1.81 billion because of fewer imports of toys and games, clothing, footwear and telecommunications equipment.
The reduced March bilateral deficit with China may help ease political tensions between the two countries. On Wednesday the Clinton administration listed $3 billion of Chinese goods that it said will be subject to trade sanctions on June 17th unless China closes factories that illegally copy American computer software, music and films.
Beijing immediately retaliated by threatening to block American investment and apply tariffs against US made cars, telecommunications and cotton.
The US trade deficit with western Europe fell sharply by 43.8 per cent to $258 million in March from $459 million in February.
