ECONOMIC SPOTLIGHT - EMS MARKS EIGHTH BIRTHDAY
The European Monetary System marks its
eighth anniversary still vulnerable to turmoil in world money
markets despite creating an island of currency rate stability
in Europe, economists say. But many economists say the system,
which holds eight European Community currencies within narrow
fluctuation bands, remains in its infancy.
    Its new currency, the European Currency Unit (Ecu), has
been a runaway success with investors and borrowers alike
seeking an alternative to the volatile dollar.
    And on Wednesday, the long term vision of the Ecu as
Europe's common currency took a step nearer to becoming reality
when Belgium minted the world's first Ecu coin.
    But economists say members such as West Germany have so far
blocked a second stage of development envisaged by the system's
founding fathers, ex-West German Chancellor Helmut Schmidt and
former French President Valery Giscard d'Estaing.
    Under this phase, originally due to have started two years
after the EMS was set up, decision-making was to have been
transferred from national governments and central banks to an
autonomous European Monetary Fund.
    But members have jealously guarded their sovereignty in
economic and monetary matters. "The basic problem of the EMS is
that governments are not prepared to make the quantum leap to a
situation where certain decisions are taken in common," said one
economist who has closely watched the system's development.
    The result is that the EC is often divided over policy on
third currencies, accentuating what the economists say is the
system's greatest weakness, its vulnerability to a weak dollar.
    Over the past 18 months, as the U.S. Dollar plunged and
investors moved into strong currencies, the resulting sharp
rise of the West German mark severely strained the system.
    Another frustration has been Britain's failure to lend the
EMS political support by keeping the pound, still a major world
currency, outside the system.
    No change in the British government's attitude is expected
before the country's next general elections, due by mid-1988.
    Meanwhile, the system's last realignment, the 11th since it
was set up, prompted European finance ministers to ask the EC's
highly-secretive Monetary Committee and Committee of Central
Bank Governors to come up with suggestions for reinforcing it.
    Their ideas are due to be unveiled when finance ministers
hold an informal meeting in Belgium early next month.
    But economists said the proposals are unlikely to involve
more than tinkering with technical details. They are sceptical
about the chances for any fundamental change.
    "Technical measures won't be enough to protect the EMS
against external factors such as dollar weakness. For that we
must take the step forward to the institutional level," said Leo
de Corel of Kredietbank's economic research department.
    Economists say the system's fortunes now will depend
largely on the success of an agreement last month among major
industrial nations to stabilise exchange rates. If the dollar
resumes its slide the EMS could be in for more turbulence, they
predict.
 REUTER
