BRUSSELS, Belgium -- Europe's currency crisis deepened yesterday as the Italian lira plummeted in value and the Irish pound, the Danish krona and even the powerful French franc came under intense selling pressure. But Germany refused to cut the high interest rates that most other European nations blame for the tumult.
One bright spot was the British pound, which grew stronger even though the British government reduced interest rates one day after abandoning its ultimately futile effort to prop up the currency's value. And the Italian government, moving to shore up its beleaguered economy, announced a massive austerity plan geared to slash its budget deficit by a whopping $75 billion.
Prices fluctuated on some stock markets as traders seemed unsure what to make of the crisis. On the London Stock Exchange, the broad-based Financial Times-Stock Exchange Index shot up about 100 points, then shed about 70 points before rising again to close up 105.6. Activity was calmer on Wall Street, where the Dow Jones industrial average closed down 3.51 points.
The German firmness on interest rates helped weaken the dollar, although the U.S. currency also lost some of the gains it had picked up Wednesday while serving as shelter from Europe's storms. The mark continued to attract new investment; a dollar bought 1.485 marks in New York late yesterday, down from 1.514 Wednesday.
The pound was quoted at $1.78 in London late yesterday, and closed at nearly that value in New York. But in a sign of continuing volatility, it fell as low as $1.72 in London during early trading.
Yesterday's daylight hours seemed tame compared with the 12 hours ending at 6 a.m. in Europe. During that period, which culminated in a six-hour meeting of European Community finance officials in Brussels that began shortly before midnight Wednesday, Spain devalued the peseta by 5 percent and Britain and Italy temporarily withdrew from the system that had linked the values of 11 EC currencies.
The day's most significant development may have been what did not happen: The governing council of the Bundesbank, Germany's central bank, met in Frankfurt but resisted the Continent-wide pressure, especially from Britain, to lower its interest rates.
David Roche, an economist with Morgan Stanley International in London, decried a "total failure" of EC nations to work together toward common economic goals.
"Blame in Europe is like custard: You can spread it all around," he said.
NB Analysts predicted a new outbreak of chaos next week if French
voters Sunday withhold their approval of the so-called Maastricht Treaty on European union, which would establish a single EC currency in 1999. The death of the Maastricht Treaty could signal that Europe is not yet ready to live under a single economic roof.
Even a "yes" vote in France will not relieve all the pressure, said George Magnus of the London investment house S.G. Warburg. By the end of the year, he predicted, Germany will bring key rates down by about 1 percentage point from the current range of 8.25 percent to 9.25 percent and more EC currencies will be devalued.
In France, the European monetary tumult dominated the final days of debate leading up to Sunday's crucial referendum, adding even more uncertainty in an already confused campaign. Both defenders and opponents of the treaty used the monetary crisis to support their cause.
Former President Valery Giscard d'Estaing, a leading treaty advocate, contended that Europe should "accelerate the march to a European money" so that such crises could not happen again.
Philippe Seguin, the treaty's leading mainstream opponent, countered: "Everything that is happening demonstrates the stupidity of a single currency."
In Germany, the Bundesbank's governing council met in its regular bi-weekly session and decided not to tamper with interest rates. The Bundesbank trimmed rates Monday for the first time in five years in return for Italy's decision to devalue the lira by 7 percent.
The bank is holding rates high -- about 6 percentage points higher than in the United States -- to prevent the costly reunification with the former East Germany from producing economic overheating and an outbreak of inflation. The high rates have also attracted huge amounts of investment capital to Germany, boosting the German mark's value against other European currencies.
In reducing rates Monday, the Bundesbank was widely criticized inside Germany for yielding to foreign pressure, and it was not about to let that happen twice in the same week.
German Finance Minister Theo Waigel, coming to the Bundesbank's defense, challenged the common view that high rates were the cause of Europe's monetary tumult.