Franc, D-Mark Drop On Worries Over Emu

The French franc fell heavily before recovering in afternoon trading in Europe. Despite repeated intervention by the French central bank a dollar that could buy FFr5.76 Monday morning ended the day worth FFr5.82. In late New York trading it was around FFr5.8345. The D-Mark was also bloodied, as traders worried about it being subsumed into a weak euro.

The German currency was down nearly three pfennigs against sterling to end at DM2.81, and by two pfennigs against the dollar to DM1.72. The late New York rate was DM1.7295.

The lefts victory in France significantly increased anxiety in Bonn about the future of Emu, particularly as it came on the heels of the dispute between the German government and the Bundesbank over the revaluation of the countrys gold reserves - a government plan aimed at helping to meet the criteria for joining a single currency.

 

Karl Lamers, parliamentary foreign spokesman for the Christian Democratic Union and Christian Social Union alliance, said France and Germany held a crucial role in the introduction of the euro.

The markets must not be given the impression that the criteria will not be taken so seriously, he said.

For the opposition Social Democratic Party, Heidemarie Wieczorek-Zeul, European spokesman, predicted that Bonn might attempt to use the French elections as an excuse for a postponement of the euro project. But Klaus Kinkel, German foreign minister, played down as campaign slogans the French Socialists suggestions that they favour a broad monetary union including Italy and Spain and a more flexible reading of the Maastricht treaty.

Jacques Santer, president of the European Commission, said there was no possibility of a delay in the launch of Emu beyond the planned starting date on January 1, 1999: Bond analysts were surprised that bond markets held their ground after the French elections, but said conditions were likely to become volatile. French government bond futures ended marginally higher than Fridays close.

European equity markets were generally higher, apparently on expectations of a rebound in economic growth with anticipated currency weaknesses. The Paris CAC-40 ended 17.5 up at 2,601.45 after being indicated at a 4 per cent loss in pre-market trading.