Germany resists calls to cut rates But Bonn will seek to steady currencies

September 20, 1992|By Gilbert Lewthwaite | Gilbert Lewthwaite,Washington Bureau

WASHINGTON -- Germany resisted committing itself to lowe interest rates to lessen the European currency crisis yesterday, but agreed with six other major industrial nations to take "appropriate additional actions" to stabilize currency markets and promote economic growth.

This appeared to signal that the central banks of the seven leading industrialized nations were ready to intervene to block continuing speculation against the weaker European countries.

Such a move would require co-ordinated bulk buying of threatened currencies to bolster their value.

The move by the finance ministers of the Group of Seven came on the eve of a crucial French referendum on the Masstricht Treaty covering the next stage of European political and monetary union, including the creation of a single European currency and central bank.

A "no" vote in France would send new shock waves through a currency system already reeling from its worst crisis in decades.

The finance ministers yesterday agreed on "the importance" of "restoring stable and long-lasting exchange rate relationships," but laid down no proposals for realigning the European exchange rate mechanism, which was left in tatters by last week currency debacle.

They undertook to "continue to cooperate and to monitor closely economic conditions in their countries and will take appropriate additional actions as needed to achieve sustained growth and greater currency stability."

Attending the meeting were the finance ministers of the United States, Canada, Japan, Germany, France, Britain and Italy.

Treasury Secretary Nicholas F. Brady said any action on realigning the European exchange rate mechanism would have to await the result of today's French referendum, but he predicted that the various currencies would find stable levels when the markets open tomorrow.

Britain's Chancellor of the Exchequer Norman Lamont set three conditions at the meeting for the pound's re-entry into the European exchange rate mechanism:

* An end to turmoil on the currency exchange markets;

* Closer synchronization of the British and German economic cycles and interest-rate levels;

* Reform of the exchange rate mechanism.

Mr. Brady emphasized that the problem was a European one, and that the dollar had remained steady and strong throughout the crisis.

Asked whether Germany had given assurances on lowering interest rates soon, Mr. Brady said: "The Germans have already taken a step, the first in five years, to lower interest rates. They thus have changed direction."

Before the meeting, Mr. Brady said European interest rates generally should be lowered to promote growth, and other Treasury officials indicated that he particularly had German rates in mind.

The meeting convened with Anglo-German tension at an undiplomatic high. Even before the daylong session opened, Theo Waigel, the German finance minister, indicated that there would be no capitulation to international pressure on interest rates.

"Neither the German finance minister nor the Bundesbank president would be in a position to promise (lower interest rates)," he said.

Mr. Waigel showed irritation over Britain's accusations of German culpability in the crisis, saying: "I am ready for talk (with Britain) at any time despite the fact that I accept neither the style nor the substance of the attacks.

"Blaming one side doesn't advance matters. It just leads to mistakes."

The British blame high German interest rates for causing tension within the European currency system, and the inadequacy of last Monday's cut in those rates for provoking the turmoil that finally made the system collapse.

The German mark was more attractive largely because of Germany's own problems -- primarily billions of dollars in unanticipated costs for German reunification -- which have compelled the Germans to borrow at high interest rates rather than raise taxes.

But the Germans maintain that Britain's failure to put its own economic house in order was the root cause of the collapse of the pound.

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