CITY AND SUBURBAN
Ce que je dis au peuple francais: votez non, votez souvent
CHRISTOPHER FILDES
The markets have voted already. A week before the French, they staged their own referendum on Maastricht, and turned it down. That is the significance of the pres- sures which, last weekend, blew the lira off its perch and unseated the Bundesbank from its high horse. This week they have forced Norman Lamont to sanction a sharp and perverse increase in our own interest rates — judged by Britain's domestic needs, an act of economic and political sui- cide. They show that the united wills of Europe's governments and central banks are not enough to hold exchange rates together, when economic and financial reality drives them apart. Maastricht says that Europe's currencies must move at full speed to a permanent union. The markets say: can't, shan't. So they caused an opera buffa crisis, set in Chiantishire and hinging on the price of negronis, to culminate in high drama. The danger (as I was saying last week) was of digging in to defend the indefensible. That happened — the Italians dug in until they ran out of money, which meant that the funk money very sensibly ran out of Italy. It did not take long. When Europe's finance ministers met for their jolly weekend in Bath, the Italians were all for riding out the pressure, at least until the French referendum. They could not make it. The lira was devalued, and so were all the official assurances that such a thing would never happen — that Europe's exchange rates were in perfect harmony, and could, should and would be sustained indefinitely. The last such promise came from the ministers gathered in Bath. It may be said to have fared worse than the lira, losing 100 per cent of its value, and depre- ciating the whole currency.
Quivering jelly
THAT DEPRECIATION is now being felt. Immediately, it calls the bluff of gov- ernments and central banks and shows up the limits of their power. The markets are encouraged to try again. If they have pushed their way through one door, they can rattle the next. Soon enough, this week, they were rattling on sterling's door again. Now it was Norman Lamont's turn to hope that he could ride out the pressure until it was time to go to Washington. (No such luck.) There he teams up with the Ameri- cans, who would like to have room for
another cut in their own interest rates, if the Bundesbank would only accommodate them with something more than the 14 per cent it so gingerly shaved off its own. That is the agenda for Saturday. Sunday brings the word from France. A non would, of course, put paid to Maastricht, but a oui would not necessarily save it — not after the vote from the markets. Its effect goes beyond the tactics of the day. What it has done is to demolish the idea that Europe's currencies, like the ingredients of some vast financial jelly, were in the process of solidi- fying. It is five years since the bowl was last stirred, all the recommended additives had been poured in — gelatine, monosodium glutamate, soft soap — so surely it must be setting by now, naturally, automatically, inevitably? No such luck. Perhaps it was a mistake to include the olive oil. Something has gone wrong with the Euro-recipe which was supposed to convert a set of fixed but adjustable exchange rates into a common currency. The fact is that the ingredients do not blend. The flavour is as bad as the tex- ture. Back to the cookery book.
For will or money
IN THE Maastricht recipe, the master- word is convergence. Europe's currencies and economies would move ever closer together, with the currencies showing the way. The cart might as well show the way to the horse. Currencies derive from economies, they reflect a country's eco- nomic and financial strengths and weak- nesses, they represent a country's market price. Fixing the prices is an odd way to fix the countries. Jacques Delors, whose plan it was, thought it could be made to work, partly by a common effort of will, and part- ly by liberal applications of money. The common will, as we have now been remind- ed, has its limits. The money was to be a huge transfer of resources from the rich core of Europe to its poorer periphery. It
was to bring on convergence by helping the periphery to compete, or at least to ease its pain, or at least to buy its support. See how the Irish voted for Maastricht, like cats vot- ing for tin-openers! Economically, it would be a distortion of market forces to make the Common Agricultural Policy read like something out of Adam Smith. Politically, it now looks like a dead end. The centre's will to pay for the fringe, from Thurso to Palermo, is visibly weakening — most of all in Germany, cast as Europe's donor-in- chief, but with quite enough claimants of its own. The markets have now rumbled Maas- tricht, and the French have the option to destroy it. The end of a delusion is always painful, and for us the pain would be imme- diate, but we have nothing to gain by fool- ing ourselves and Europe. We shall all do better to face facts. Francais, francaises, votez non, votez souvent.
Going Dutch
IT TOOK Holland's finance minister, the ineffable Wim Kok, to say that the lira's collapse had strengthened monetary inte- gration within Europe. Mr Kok is the latest in a line of Rentadutchmen who can be relied on to say the anodyne thing and thus become candidates for international posts. His predecessor, Onno Ruding, chaired the International Monetary Fund's key com- mittee of ministers, and was runner-up to Jacques Attali (a distinction of a sort) for the top job at the European Bank for Reconstruction and Development. Before him came Johannes Witteveen, who became the IMF's managing director and thereafter was never heard of again. Mr Ruding heads the betting for the governor- ship of the new European central bank, as specified in the Maastricht Treaty, so it would not be in the interest of Rentadutch- man NV if the treaty and the bank disap- peared, taking the rentajob with them.
On principle
THIS IS a good week for Paribas, the French investment bank, to send me its newsletter, garnished with a quotation from Somerset Maugham:
The most useful thing about a principle is that it can always be sacrificed to expediency.
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