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.
  

