The European Monetary System, which will immediately become a symbolic landmark of European economic cooperation, and in the far distant future, could even lead to a single European currency will be initiated formally next week.
That was the prediction yesterday by West German Finance Minister Hans Matthoefer, who played a leading role, representing Chancellor Helmut Schmidt, in developing the system.
Under the new EMS -- initially resisted by the United States -- seven of the nine Common Market countries will keep their currencies from Fluctuating more than 2.5 per cent against each other. Italy, as a weaker country, will be allowed a 6 per cent fluctuation. Great Britain, the weakest of the nine Common Market countries, has for the moment opted to stay out of the system.
The method by which the eight countries will keep their currencies in a new version of the "snake" will be an intervention fund of some $30 billion created by each depositing 20 per cent of its national reserves.
Schmidt and French President Valery Giscard d'Estaing were the chief backers of the system they believe will create "a zone of stability" in Europe and help promote economic growth.
In an interview yesterday at the German Ambassador's residence on Foxhall Road, Matthoefer said this stability would enable "a small European businessman to make his sale, and calculate... what money he will get later. It's like a fellow in San Francisco who can sell a machine tool in New York, and know that the dollars he deals with in San Francisco are the same as he gets in New York. That's our aim."
But beyond the economic aspect lies political stability, Matthoefer said: "If you want to keep up stable exchange rates, you have to have financial and economic policies so that inflation differentials and current account (trade and services) deficits could not be too great."
Inevitably, Matthoefer predicted, that will lead to the "unification of economic and fiscal policies in Europe."
The third aspect he stressed is the future potential for a common currency. The reserve pool behind the exchange rates will be denominated as European Currency Unites, the initials of which -- ECU -- happen to be the name of an old French coin, the ecu.
It will be "a long, long time" before there actually is an "ecu" which replaces the d-mark, french franc, guilder and other European coins, Matthoefer said. But as a symbol of what may eventually come, Matthoefer said, he bought three old silber ecus and presented them to Schmidt on his 60th birthday last December, "and expressed the wish that in the future we might have such a European coin.
Matthoefer said that it was not unrealistic to think that European investment accounts could soon be denominated in the European Currency Units -- well before it became a common currency -- or that salaries of persons working for international organizations could be expressed in ECUs.
Over the course of years, one unified currency "would be an enormous step forward for economic integration," Mattheofer said, "with all the beneficial effects that American industry has for its home market.
He took electronics as an example: "I don't know whether it's still the case, but two years ago, 80 per cent of the micro-electronics market was in the U.S. Co anybody producing here had an enormous advantage to have this type of economy as its base -- we want to have something similar in Europe, and we find the European Monetary System is a step in the right direction."
Apart from this sort of practical business advantage that the Europeans think will flow from a more integrated money system, the EMS also satisfies an ideological preference for more fixity in exchange rates, and a basic distrust of floating rates, now legalized by the International Monetary Fund.
But Matthoefer said that both the IMF and the United States now concede that there is nothing inconsistent in IMF rules with a "regional" system like the EMS that has a degree of greater stability. And as for the initial U.S. concern that the EMS might tend to weaken the dollar, he said such doubts were resolved by West Germany's strong support for the dollar last Nov. 1 as part of the dollar rescue program.
In fact, Matthoefer believes that a fully operative EMS will relieve pressures on the dollar because European rates will be more stable. But he stresses, at the same time, that the eventual course of the dollar "depends on U.S. policies, not on what we in Europe do."