European Economic Community Finance ministers, meeting here yesterday to forge ahead with ambitions plans for a new European monetary system, found themselves upstaged by a surprise decision, announced early in the morning, calling for a revaluation of the German mark worth an average 3 percent against the other European currencies to which it is linked.
The currency adjustment move, decided during the night at a secret meeting of the finance ministers of the German-dominated European "snake" zone (including Holland, Belgium, Luxembourg, Denmark and Norway) is avowedly designed to tranqulize the hyperactivity on EEC currency markets, caused principally by the flight from the faling dollar into the booming German mark.
Hectic upward pressure on the German currency culminated Friday, when the German Bundesbank reportedly spend 1.5 billion Deutschemarks, about 5800 million in a last-ditch attempt to shore up the existing parity relationships in the "snake," or European joint float, which EEC leaders are seeking to extend and strengthen into a wider EEC system after Jan. 1.
But this eleventh-hour intervention proved unable to stem persistent market pressure, most dramatically msymbolized by record-breaking lows on many European markets for the embattled dollar.
The immediate impact of the decision is to hike the Deutschemark parity 4 percent against the Danish and Norwegian crowns, and 2 percent against the Dutch. Belgain and Luxembourg currencies. But an implicit aim is to stem the speculative tide eroding the dollar's dwindling strength.
According to Hans Matthoefer. German finance minister, in a communique published here yesterday. "The decision was necessary if calm was to be restored on exchange markets," claiming that the steps taken would facilitate efforts to establish a European monetary system," which was the main topic of complex technical negotiations, which ended inconclusively here yesterday.
However, the downward dive of the blighted U.S. currency, still the major reserve unit sold by the Common Market's central banks when they need to bolster their own currencies, could ease in the short-term as some of the stress is taken out of European exchange markets by the revaluation, observers here said.
But even they admit that any dollar recovery, not dramatically apparent in yesterday's European money markets, could be short-lived once profit-takers return for another round of speculation.
The latest currency move is a mixed sugury for the planned European monetary system, which would bring the Common Market's other major currencies - the pound sterling, the French franc and the Italian lira - into a fixed relation with the German mark. The aim of this scheme, debated here yesterday heralded at an EEC summit meeting last July in Breman, is to reduce the yawning gap between all Common Market currencies so as to ensure a firmer basis for expanding trade and economic growth in the nine-member EEC, and particularly in Germany, has been a constant complaint of the U.S. administration and one which is often mirrored by critism leveled by weaker European countries such as Britain and Italy against the economic policies pursued in Bonn.