EC AGREES ON NEED TO STRENGTHEN EMS

  European Community (EC)
  finance ministers and central bankers agreed on the need for
  greater cooperation to strengthen the European Monetary System
  (EMS) against international market turbulence, officials said.
      "There was a general will to reinforce the European Monetary
  System, with all that implies," Belgian Finance Minister Mark
  Eyskens said yesterday after hosting a one-day session of
  informal talks at this Belgian coastal resort.
      The gathering was the first such discussion since the
  second major realignment of EMS parities within nine months in
  January.
      The system has come under severe strain as funds have
  flowed out of the slumping dollar and into the dominant EMS
  currency, the West German mark, sending it soaring against
  weaker currencies in the system.
      But Eyskens said February's agreement between leading
  western industrialised nations to stabilise exchange rates at
  around current levels was working and this would allow the EC
  to speed up its efforts to boost the internal stability of the
  EMS.
      He told a news conference yesterday's meeting agreed on the
  need for closer coordination among EMS member governments of
  interest rate policies and of interest rate differentials
  between different countries.
      They also agreed they needed better coordination of
  exchange market intervention to hold currencies stable, both
  when they reached their fixed EMS limits and within their
  agreed margins.
      But Eyskens said this coordination raised a whole range of
  technical problems and ministers would discuss these further in
  Luxembourg in June on the basis of proposals from the EC's
  Monetary Committee and Committee of Central Bank Governors.
      He said the EC needed a set of indicators of economic
  convergence betwen Community countries and it was important
  that interest rates fulfilled this role together with exchange
  rates and inflation rates.
      The Belgian minister, whose country presently holds the
  presidency of the community, made clear the meeting had not
  produced any agreement to move radically forward in developing
  the EMS towards the EC's long term goal of economic and
  monetary integration.
      "We have committed ourselves to reestablishing the normal
  functioning of the system," Eyskens said.
      Eyskens has repeatedly stressed that he believes the EMS
  has to be reinforced if the EC's plans to liberalise all
  movements of capital across national borders by 1992 are to go
  ahead.
      EC executive Commission President Jacques Delors told the
  meeting the authority would put forward proposals for a final
  phase of capital market liberalisation in October that would
  include safeguard clauses for member countries for which the
  move would create difficulties.
      Eyskens said the ministers and central bankers also
  discussed the need to "dedramatise" realignments of EMS parities
  by letting high-ranking monetary officials carry them out by
  telephone rather than calling a meeting of finance ministers.
      However, West German sources said Bonn Finance Minister
  Gerhard Stoltenberg was unenthusiastic about the idea.
      British Chancellor of the Exchequer Nigel Lawson told
  journalists that one of the technical issues raised by greater
  coordination of exchange market intervention was the question
  of which currencies should be used to intervene and held in
  central bank reserves.
      He said several EMS member countries believed the EMS would
  work better if central banks held each other's currencies -- an
  issue of particular importance regarding West Germany since the
  Bundesbank holds only dollars in its foreign exchange reserves.
      He said the debate on dedramatising EMS realignments
  reflected a general feeling among participants that the way the
  January reshuffle had been conducted was unsatisfactory.
     The realignment was marked by acrimony between France and
  West Germany, with each side blaming the other for strains in
  the system that forced the parity overhaul.
  

