France, Germany deny rift over currency tensions

August 04, 1993|By New York Times News Service

PARIS -- Senior French and German economic officials yesterday brushed aside suggestions that the currency decisions over the weekend had caused a rift in their countries' relations. They pledged to work together to restore monetary stability in the European Community.

Helping to set the mood of what the French called "a very warm" meeting, Germany's central bank, the Bundesbank, lowered an interest rate early yesterday, allowing the franc to recover some of the ground it lost against the mark Monday.

The German bank's president, Helmut Schlesinger, who attended the talks here, said the bank had reduced its 14-day repurchase rate on short-term loans to 6.80 percent, from 6.95 percent. The step was quickly welcomed by the French.

The French franc, which has a nominal value of 3.35386 to the German mark, had fallen at one point Monday to 3.5305, but late yesterday it recovered to 3.48 in trading in Europe. The Spanish peseta, Belgian franc and Portuguese escudo also regained ground against the mark.

By contrast, the Paris stock market, which rose sharply Thursday and Friday as well as Monday in the expectation of early French interest-rate cuts, registered its disappointment yesterday, with the CAC-40 index closing down 0.87 percent.

Brokers said that if France continued to follow German monetary policy, a further drop by the index was likely.

German officials expressed satisfaction that France had not rushed to lower its own rates and was committed to maintaining the strength of the franc.

The French prime minister, Edouard Balladur, had said Monday that he would not immediately cut interest rates, and yesterday his economy minister, Edmond Alphandery, emphasized here that the government would continue to put priority on combating inflation and assuring "the stability of the external value of our currency."

The main purpose of yesterday's meeting was to put on a show of unity after persistent reports that relations between France and Germany had been badly hurt by the weekend decision.

The crisis last week was provoked by the Bundesbank's decision Thursday not to lower its discount rate, the most important German interest measure, followed by wild speculation against the franc and other currencies Friday.

European Community finance ministers and central bank chiefs, in response, widened the fluctuation margin of the franc and six other currencies -- to 15 percent from the old ranges of 2.25 percent and 6 percent. They acted in hopes of saving the European Monetary System.

After yesterday's talks, Mr. Alphandery declared: "I want to lay to ZTC rest all these rumors about the so-called deterioration in French-German relations. I can testify that during this period of tension on the markets, the French-German couple once again proved its solidity."

Germany's finance minister, Theo Waigel, also spoke as if nothing had ruffled relations, declaring that France and Germany had cooperated "flawlessly" to produce the "good solution" of loosening the system of linked exchange rates.

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