Franc 'should become ERM anchor'

THE French franc should temporarily take over from the German mark as the anchor of the European exchange rate mechanism, according to John Williamson, senior fellow at the Institute for International Economics.

Changing the anchor would mean that if the mark rose to the top of its ERM band, the onus would be on the Bundesbank to cut its interest rates, not on other central banks to raise theirs.

Mr Williamson told an international round table of the Tokyo Colloquium, sponsored by Yomiuri Shimbun and the Independent, that the mark's ceiling in the ERM should also be moved upwards temporarily to accommodate the shock of German reunification. Allowing the mark to rise further would help put downward pressure on German rates.

If, instead, the ERM was tightened for a select core of countries in the German bloc, Britain would be left out with less chance of returning to the system. 'In which case there is a danger that the dash for growth will change into a new inflationary outburst,' Mr Williamson said.