Socialist Germany Spats with European Central Bank
ECB warns against target zones for the euro and the dollar
The European Central Bank on Thursday clashed with the new German government over the exchange rate policy of the euro, the new single currency.
Wim Duisenberg, president of the European Central Bank, warned that target zones for the euro, the dollar and the yen were "not desirable" as a way of controlling currency turbulence.
Meanwhile, Oskar Lafontaine, German finance minister-designate, reiterated his support for target zones. Speaking at a meeting with Dominique Strauss-Kahn, the French economy minister, in Saarbrücken, Mr Lafontaine said: "We need stabilisation of the exchange rate of the large industrial countries, especially between the dollar and the euro."
Signalling his hostility to Mr Lafontaine's plans, Mr Duisenberg said international capital movements had grown hugely since the collapse of the Bretton Woods system of fixed but adjustable exchange rates in the early 1970s. This limited the capacity of central banks to control exchange rates.
Mr Duisenberg admitted that co-ordination of central bank policies had helped control exchange rates at various times since. But these were ad hoc measures. The ECB president said he felt "a great disquiet" about the effects on price stability of generalised exchange rate accords.
Although Mr Duisenberg did not mention Mr Lafontaine by name, his remarks suggested that relations between the Bonn finance ministry and the ECB were likely to be strained.
Mr Lafontaine and Mr Strauss-Kahn underlined the shift in perspective in European Union policymaking now that the two countries at the heart of the euro project have left-of-centre governments. Welcoming what they called "a new chance" and "a new phase in Franco-German co-operation", they said job creation started first of all with the need to improve growth.
Mr Lafontaine also called for tighter controls on the activities of banks and hedge funds but gave no specific details.
Mr Strauss-Kahn said: "Our common will is the need to put in place a policy of growth in European to fight against unemployment."
However, speaking on the same day that the Bundesbank left its benchmark interest rate unchanged at 3.3 per cent despite political pressure from the left for a reduction, the two men said they were not challenging the independence of central banks, including implicitly the ECB.
"To suggest that central banks and the policies of particular governments are in opposition to each other isn't right. There is no formal opposition between the two poles," Mr Strauss-Kahn said.
Mr Lafontaine observed that his freedom for manoeuvre would be restricted by EU agreements to limit budget deficits and by what he called a DM20bn (£7.2bn) hole left in the German budget by Helmut Kohl's outgoing government.
However, he insisted that France and Germany still had a responsibility to pursue a strategy of growth and job creation. "We are all charged with the task of bringing down mass unemployment . . . I see no danger of inflation."
The Financial Times, Oct. 23, 1998 |
