Germany's Finance Minister, Mr Hans Eichel, will meet his French counterpart, Mr Laurent Fabius, today amid growing anxiety among German conservatives over a French proposal to allow the euro zone finance ministers to exert greater influence over European monetary policy. Mr Theo Waigel, who served as Germany's finance minister under Dr Helmut Kohl, urged his successor to resist any attempt to create a political counterweight to the European Central Bank (ECB).
"Such demands could damage the ECB's authority - and in its current situation, the euro is in no state to deal with this," Mr Waigel told the Frankfurter Allgemeine Zeitung yesterday. Mr Fabius suggested last month that the 11 euro zone finance ministers might in the future have a say in setting the ECB's target limit for inflation, which is currently set at 2 per cent.
Germany has not taken a position on the issue and a government spokesman said that enhancing the role of the euro zone finance ministers would not be on tomorrow's agenda.
Mr Fabius is expected, however, to elaborate his thoughts on transforming the Euro-11, as the euro zone finance ministers are known, into something like a European economic government when EU finance ministers meet in Versailles next week.
Irish policy-makers are wary of such proposals, which they fear could lead to the harmonisation of tax rates throughout the euro zone, robbing the Republic of some of its competitive advantage in attracting foreign investment.
Mr Waigel's warning was echoed by Mr Franz-Christoph Zeitler, a member of the board of the Bundesbank, who said he viewed with concern any attempt to create a political counterweight to the ECB.
The ECB president, Mr Wim Duisenberg, has stated that he sees no necessity to change the relationship between the Bank and the euro zone finance ministers.
Mr Duisenberg never tires of pointing out that the ECB is constitutionally obliged to resist political influence.
He and his 16 colleagues on the ECB's Governing Council will meet on Thursday for the first time since the summer break amid growing speculation that they will increase interest rates by at least 25 points.
Most analysts believe that the central bankers will ignore signs that Germany's economic recovery may be faltering and figures released by the ECB yesterday showing that money supply growth is slowing.
M3 money supply grew by an annualised rate of 5.3 per cent in July, compared to 5.4 per cent in June and 5.9 per cent in May.
The rate of growth remains well above the ECB's target of 4.5 per cent, however, and the bank's most recent monthly bulletin expressed concern over the danger of inflation caused by high oil prices and the continuing weakness of the euro on foreign exchange markets.
Mr Waigel said that the euro's exchange rate was no cause for alarm and he pointed out that, although the value of the deutsch mark versus the dollar had been similar to that of the euro today when he became finance minister 11 years ago, the German currency was widely perceived as strong.
"These days, everyone is trying to define the exchange rate relationship as a weakness of a new common currency.
"But we're still moving well within the bounds of what has occurred over the last 20 years," he said.
The euro closed at 90 cents against the dollar yesterday.
