Emu Future Thrown Into Confusion

The Bundesbanks toughly worded statement set it on collision course with Chancellor Helmut Kohls government. The crisis triggered volatile conditions on financial markets with the D-Mark oscillating between strength and weakness against the dollar and sterling.

An unrepentant Kohl - backed by his top political allies - swept aside the Bundesbanks protest. A statement issued by Kohl, Theo Waigel, the finance minister, and other Bonn coalition leaders made clear the government would go ahead with its plan to change the Bundesbank law and transfer part of an extraordinary gain from the revaluation of the gold reserves to Bonn this year.

 

Such a move would help to keep Germanys 1997 public deficit below the target of 3 per cent of gross domestic product laid out in the 1992 Maastricht Treaty and could bring Germanys public debt down towards the 60 per cent of GDP prescribed in the treaty.

The Bundesbank cannot prevent the government from changing the law to allow the gold revaluation. But, according to analysts, the central bank could refuse to transfer the resulting gain to Bonn in the present calendar year, on the grounds that it has already made its annual profit transfer to the federal accounts.

After an unusually long meeting of its decision-making central council, the Bundesbank said Waigels plan to revalue the gold

could be construed as an attack on Bundesbank independence. It said the plan to use a capital gain from the gold revaluation this year to meet the Maastricht criteria did not conform with the planned rules of the future European central bank.

It said such action could undermine the credibility and stability of the planned European single currency. The Bundesbank reminded the Bonn government that it, and the bank, had always insisted that the convergence criteria should be met credibly and sustainably to establish Emu on solid foundations.

Kohl and the other coalition leaders said there was no need to wait for 1999, when the ECB would have decided how to revalue the gold. Declaring it was sensible and also responsible to adjust the value of the gold now, they insisted the banks independence would not be diminished. They said the gold would be revalued conservatively and more cautiously than in most other European central banks. Publication of the Bundesbanks statement came after a day of tension on financial markets. The Bundesbank was forced to break the news blackout surrounding its discussions to deny rumours that Hans Tietmeyer, the Bundesbank president, was resigning.

When it became clear that the central bank would issue a statement yesterday evening, Waigel cancelled a speaking engagement in Augsburg near his Bavarian home and stayed in Bonn. Waigels plan to revalue the Bundesbanks 95 million ounce gold hoard and use the proceeds to help meet the Maastricht debt and deficit criteria was first disclosed two weeks ago.