FOCUS - Germany blocks deal on ECB head
(Recasts with Germany blocking ECB deal)
By Janet Northcote
BRUSSELS, May 2 (Reuters) - A landmark European Union summit to anoint the 11 countries forming a single currency was plunged into disarray on Saturday night when Germany blocked a deal on the presidency of the European Central Bank, diplomats said.
The Germans rejected a deal to appoint Dutchman Wim Duisenberg on the understanding that he would step down after only four years to make way for a Frenchman, invoking the German constition.
''We are starting again from zero. Germany has said it cannot accept the agreement. It's a problem with their constitution,'' a diplomat said after more than seven hours of wrangling at the Brussels summit.
Sources in the German delegation said hardline Finance Minister Theo Waigel, whose right-wing Bavarian Christian Social Union is a vital coalition partner for Chancellor Helmut Kohl's Christian Democratic Union, forced the chancellor to pull out of the deal.
The sources said they still expected a deal to be reached later on Saturday.
As details of the mooted compromise emerged, economists in the financial markets warned that any truncation of the first ECB chief's eight-year term would hit confidence in the euro.
Diplomats said that under the deal proposed by British Prime Minister Tony Blair as chairman, the summit minutes would have stated explicitly that Duisenberg, 62, had offered to retire at the latest by July 1, 2002, when euro notes and coins replace national currencies in the 11 founder states.
His successor would be a Frenchman, but the text would not explicitly name French central bank governor Jean-Claude Trichet, the rival candidate nominated by French President Jacques Chirac, the sources said.
Economists said that financial markets were unlikely to welcome such a deal, which would be seen as compromising the political independence of the central bank.
''If the EU summit does not avoid the impression that the settlement has departed from a full eight-year term, the European Central Bank will have to pay dearly for its credibility,'' said economist Juergen Pfister of Commerzbank in Frankfurt, adding higher interest rates might be the result.
''It looks like this is an agreement made in France and I think markets will react very badly,'' said Jullion Jessop, an economist at Nikko Europe in London.
But Greek Finance Minister Yannos Papandoniou dismissed any talk of a crisis of confidence, saying: ''This will all be forgotten in a couple of days.'' The history of the European Union was studded with such horse-trading, he said.
"We remember the councils, not the wars," he said.
The diplomatic wrangle largely overshadowed what had been planned as a grand summit to formally endorse the launch of economic and monetary union in January, 1999.
Blair held lengthy separate ''confessional'' meetings with key players, including Chirac, Kohl and Dutch Prime Minister Wim Kok in a bid to break the deadlock.
Other leaders sat cooped up all afternoon like a prosperous hung jury, sipping vintage Bordeaux wine -- a 1986 Chateau Pichon Longueville -- in the lunch room of the pink marble Justus Lipsius building.
Spanish Prime Minister Jose Maria Aznar smoked heavily. Kok and Kohl, Europe's veteran power-broker, left the room occasionally to confer in the corridor outside.
After the German objection, Waigel and powerful Bundesbank president Hans Tietmeyer joined the negotiations alongside Kohl, diplomats said.
The quarrel over who should head the central bank, which will set interest rates in the new euro-currency zone, went to the heart of how economic policy will be conducted when the single currency comes into being.
The ECB president will be the main arbiter of monetary policy in Europe and will carry great weight around the world.
Germany, which will host the bank, wants to see a continuation of the Bundesbank's tough, anti-inflationary policy to ensure that the new euro is as strong as the deutschemark, a potent symbol of German economic muscle.
But France's recently-installed Socialist government wants a more politically driven European economic policy, matching hard money policies with measures to boost jobs and growth.
Under the proposed arrangement, Frenchman Christian Noyer, a former Treasury director, would serve as ECB vice-president for four years under Duisenberg.
Others nominated to the bank's executive board were Bank of Italy board member Tomasso Padoa Schioppa, Bank of Spain board member Domingo Solans, German Bundesbank chief economist Otmar Issing and Bank of Finland governor Sirkka Hamalainen.
The European Parliament earlier overwhelmingly voted in favour of monetary union going ahead as planned in January.
British Chancellor of the Exchequer Gordon Brown presented Parliament the unanimous recommendation of the 15 EU finance ministers that 11 states join the euro launch.
The historic resolution was approved with a standing ovation and a massive majority of 467 votes to 65. Only a handful of far-right members jeered the death of 11 national currencies.
European Commission President Jacques Santer told the assembly that ''thanks to the euro, at a single stroke Europe will bestride the world's financial and monetary map,'' balancing the dollar in the international monetary system.
Brown told parliament that Germany, France, Italy, Spain, Portugal, Austria, Belgium, the Netherlands, Luxembourg, Finland and Ireland would form an economic giant equivalent to the United States in population, output and trade.
Britain, Sweden and Denmark have opted to stay out at the start and Greece plans to join EMU by 2001.
Finance ministers were due to meet again later to set the exchange rates which will irrevocably lock the 11 currencies together in what many have dubbed 'Euroland'. |
