France upsets Germans on interest cuts

THE abrupt cancellation of a Franco-German economic council last week demonstrated the new tensions between Paris and Bonn over France's growing confidence in the strength of the French franc.

The Friday meeting was announced by Edmond Alphandery, France's centrist Finance Minister, in a radio interview on Thursday morning. Mr Alphandery said he had called the meeting to discuss co-ordinated lowering of interest rates.

A few hours later Theo Waigel, his German counterpart, cancelled the meeting at which Helmut Schlesinger, the Bundesbank president, was also due to be present. His public line was that urgent problems kept him in Germany, but few believed the explanation.

It was the tone of the French minister's comments that apparently prompted Mr Waigel to cancel - and lose a chance for another interest rate drop.

'Europe suffers from monetary policies which are too restrictive, especially from a German monetary policy which is too restrictive,' Mr Alphandery said.

'The Germans must speed up their lowering of interest rates. That is why I took the initiative, hot on the heels of the Copenhagen summit, to ask my colleague Theo Waigel and Helmut Schlesinger to come to Paris tomorrow.'

He added: 'We shall be able to talk as equals with the Germans. That was not the case a few months ago.'

Mr Alphandery's remarks are probably a precursor to a deterioration in Franco-German relations, focused on monetary policy, which some politicians have been predicting for months.

'The ERM worked well as long as the Germans were virtuous,' one Gaullist said before the election. 'But when they are no longer virtuous . . .'

The French government rarely loses a chance to stress its commitment to keeping the franc-mark parity, insisting that it is the cornerstone of its economic policy.

A small minority of politicians, mainly those who opposed the ratification of the Maastricht treaty last year, believe the franc should be taken out of the ERM and allowed to float.

Alain Madelin, the UDF Trade and Economic Development Minister, although pro-Maastricht, was among those calling for the franc to be de-coupled from the mark before the election. He argued, however, that if floated, the French currency would probably rise. Other proponents stick to the classic argument that the franc should be allowed to fall to stimulate exports.