France and Germany to meet over EU bank rift

GERMANY and France will attempt to heal a growing rift over the future of the European Central Bank (ECB) when finance ministers and central bankers from the two countries meet next month. The meeting is one of two held yearly.

The disagreement centres on a French proposal for a "political counterweight" to the European Central Bank, a move Bonn fears would inhibit the bank's independence and damage its chances of maintaining price stability following the introduction of a single European currency in 1999.

The president of the Bundesbank, Mr Hans Tietmeyer, criticised the French proposal in a speech last week, claiming it was in breach of the Maastricht Treaty. He hoped countries which did not share Germany's tradition of central bank independence would see that political control of the ECB did not conform with the terms of the treaty.

Mr Tietmeyer received support this week from his Dutch counterpart, Mr Wim Duisenberg, who is widely tipped to become the first head of the ECB. Quoting Article 7 of the treaty, he said that it expressly ruled out any political influence over the bank.

"The French lost that battle in 1991 but they have never given up," he said.

Although EU officials claim that 14 out of the 15 member states support Mr Duisenberg's appointment, the French Foreign Minister, Mr Herve de Charette, insisted on Monday that no decision had yet been made. Paris is still hoping that a Frenchman can be appointed to the job and one French official claimed last week that Germany had promised to support a French candidate.

At the heart of the dispute is a conflict between Germany's federal tradition, which enshrines the political independence of the Bundesbank, and France centralised political system which rejects the idea of such a powerful institution being run by technocrats without any political control.

Paris originally backed European Monetary Union as a safeguard against German economic domination of Europe but many French officials now fear that the ECB will become a pan European version of the Bundesbank.

With two thirds of the German public opposed to abandoning the deutschmark for the euro, German politicians insist that the independence of the new central bank is crucial to reassure voters that the euro will be stable.