AS Italy prepared to rejoin the ERM, Bundesbank president Mr Hans Tietmeyer has said that any states remaining outside the EMU at its inception should join a so called EMS II system at that time.

Admitting that it is highly unlikely that all 15 European states could join EMU at its inception in 1999, Mr Tietmeyer urged those outside initial convergence to forge other links to signal convergence in the future. "EMS II can generate a very important signal", Mr Tietmeyer said.

"What the signal must be is all states - whether they are already participants in monetary union or not - want to strengthen convergence", he said. After all, "convergence is the objective of monetary integration, beyond the inception of monetary union", Mr Tietmeyer said.

Meanwhile the pound has continued to trade at close to parity with sterling and has held on to its three year high levels against the deutschmark.

In fairly quiet trading yesterday, the Irish currency managed to trade, within a narrow range, drifting between 99p and just over 100p sterling throughout the day before closing at 100.17.

Moving in line with strong sterling, the pound rose again against the ERM currencies. On the day the pound held on to its highest level against the deutschmark since the January 1993 devaluation, closing yesterday at DM2.53.

The pound also retained its position at the top of the ERM grid, trading at more than 6 per cent higher than the lowest currency.

The pound is still, however, trading comfortably within the 15 per cent bands of the ERM but is causing concerns for the Central Bank, which would prefer to see it trading within a tighter range, a condition set down to join EMU.

Official figures yesterday show a marked slowdown in retail sales in, the economy for the fourth successive month.

Central Statistics Office figures show a 1.4 per cent drop in the value of retail sales in September, giving a year on year increase of 5.1 per cent. This follows a 0.4 per cent fall in August and even sharper declines in the previous two months.

While the figures provide welcome news on the inflationary front for the Central Bank, some economists are warning that the slowdown could signal that the economy has moved into a weaker phase of growth. Riada economist Dr Dan McLaughlin said the surprisingly weak growth in retail sales in recent months suggests that the economy is, now growing at a weaker pace than last year.