Lamont heads for meeting over ERM
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Your support makes all the difference.NORMAN LAMONT, the Chancellor, flew to Denmark yesterday as EC finance ministers gathered for a two-day meeting at which they will be presented with a long-awaited report on the health of the European exchange rate mechanism.
Despite the Chancellor's earlier claims of fundamental flaws in the ERM, the report is expected to prescribe only more of the same medicine.
Eight months have passed since the crisis of 16 September when Britain withdrew and the mechanism - designed to create stable exchange rates - nearly collapsed. In that time the Spanish peseta, Portuguese escudo and Irish punt have all had to devalue, while France has systematically cut interest rates.
This gap between the stronger and weaker currencies - the 'fault lines' identified by Britain - is in effect creating a mark-linked 'hard core' comprising the Benelux countries, Denmark, France and Germany. Increased political tension among Community members as they struggle to converge their economies ready for full monetary union is the result.
The study by the EC Monetary Committee, the central bank governors and Treasury representatives who police the system, was commissioned by finance ministers in the wake of Black Wednesday. But it is unlikely to contradict the conclusion of a recent meeting of central bank governors that the ERM does not require fundamental reform.
Any suggestions for change are likely to involve recommendations that action be taken before a currency hits its ERM floor, and suggest more realignments. These would help reduce the speculative pressure that builds up behind a weakening currency and lessen the need for expensive central bank intervention.
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