18 NOVEMBER 2000, Page 52

CITY AND SUBURBAN

His bank wants to price me out of the market, so I've a Beaune to pick with Wim

CHRISTOPHER FILDES

Afact-finding visit to Beaune encour- ages me to believe that I can see the Euro- pean Central Bank off. It will not succeed in its plan to price me out of the market for drinking in France. It keeps trying, of course. Every so often it marches into the market and buys euros, hoping to move the exchange rate against me, but when it stops, the euro slips back, and at 10.8 francs to the pound some burgundies are so affordable that it would be an extravagance not to drink them. The moral is that there are lim- its to what central banks can do by slugging it out with their enemies, buying the cur- rency everyone else wants to sell. Now that the currency markets turn over a trillion dollars a day, central bankers do not have the muscle to impose their will by force. They spend their money to show that they care, which is better than telling the sellers how silly they are, but will not turn the trick on its own. When a central bank cares enough about its currency's plight to take action, there are only three things it can do. It can intervene, as the ECB has, buying its own currency and selling other people's. It can put up its interest rates, making its cur- rency more rewarding to own and more expensive to sell short. Lastly, it can press for changes in its country's policies. When our own currency was in the doghouse, chancellors and prime ministers would be urged to tighten up — spending and bor- rowing less, taxing more — or watch the pound collapse. It revolted them, but they did it. Making that happen in the eurozone is quite another story, as the ECB's hapless first president knows to his cost.