Moves to defuse row over EU bank
GERMAN and French officials have sought at the Davos summit to defuse a row over the European, central bank's independence and agreed it would be immune from political pressure when the single currency starts in 1999.
The German Finance Minister, Mr Theo Waigel, went so far as to say he favoured a French proposal for an informal "stability council" to co ordinate policy among member governments after the launch of a single European currency.
"This kind of body makes sense for countries in the third stage of economic and currency union (EMU)," Mr Waigel told reporters at the annual World Economic Forum in Davos, referring to the launch of a single currency.
"A stability council would be an informal body with no decision making power," Mr Waigel added, making clear the panel could not act as a pro growth political counterweight to central bankers intent on keeping inflation under control.
The stability proposal has come under fire from Germany's Bundesbank, which fears it might be used to undermine the independence of the European Central Bank (ECB) that is due to start work with the launch of the single currency.
But Mr Waigel said the independence of the ECB was guaranteed by the Maastricht Treaty. "The independence of the European Central Bank is made even clearer in the Maastricht Treaty than (the Bundesbank's independence) in the German central bank law, and it will stay that way," Mr Waigel said.
Mr Johann Wilhelm Gaddum, vice president of the Bundesbank, said he had no doubt that France would respect the future central bank's independence, even though some people in France questioned this. "But what is decisive is what the French political leadership thinks, and here I have no doubt that it backs the compromises found in the Maastricht Treaty," he said.
The European Commission President Mr Jacques Santer told politicians to keep their hands off the euro and leave monetary policy to the European Union's central bank. "We on the Commission are of the opinion that we should implement the Maastricht Treaty as is," Mr Santer said.
He said the EU executive would not take a formal position on the French suggestion because it went beyond the 1991 treaty.
"But in my personal opinion the stability council cannot be allowed to affect the independent status of the European Central Bank," he said. "And secondly it can have only an informal character because it is not envisioned in the Treaty."
At the same time senior German bankers held out the prospect of turmoil own financial markets if countries like Italy were allowed to help launch Europe's single currency in 1999.
Only by limiting monetary union at first to countries with hard currencies can the euro hope to win the markets' confidence.
"If Italy and certain other countries are in, a time bomb is ticking within EMU," Deutsche Bank board member Mr Ulrich Cartellieri said at the conference. "The fiscal success that the government in Rome has enjoyed recently cannot be maintained in the long run."
Mr Horst Siebert, president of the Kiel Institute of World Economics, said the deutschmark could fall to two to the dollar if monetary union extended south of the Alps.
"With a monetary union 15 minus X (members), the euro will probably be weak, inflation will rise in Europe, we will have financial instability in world currency markets and political disputes on the dollar euro exchange rate," he said.
For months Italy, Spain and Portugal have insisted they would be founding members of the euro and have used tough savings drives to help meet economic criteria on deficits, debt, inflation and interest rates.
Mr Gaddum declined to speculate about which EU members might be in the founders club, but added: "If there are unjustified compromises in the selection process, there is the threat of turbulence."