Paris and Bonn look to mend fences: Leaders keen to show that core alliance is thriving

FRANCE and Germany are expected go out of their way this week to prove that the core alliance in the European Community remains in good shape despite the strains earlier this month when financial speculators all but wrecked the Exchange Rate Mechanism (ERM).

The French Prime Minister, Edouard Balladur, is leading a team of senior ministers to Bonn for talks aimed at repairing the battered relationship and showing that there is plenty of life in the drive towards European union.

Germany, for its part, is angry with France's obstinacy in holding up agreement in the General Agreement on Tariffs and Trade (Gatt), where it wants special concessions for its farmers. A meeting of farm ministers may prove to be the thorniest discussion of the week, however. French farmers are already threatening a million-strong demonstration around Paris if they are dissatisfied.

The foreign ministers, Alain Juppe and Klaus Kinkel, will begin the series of talks in Dresden today, discussing the ERM. The French government spent more than FFr300bn (pounds 35bn) defending the franc during the recent crisis, causing Mr Balladur to point the finger of blame at Bonn.

He said 'the persistence of high interest rates in Germany' gave an opening to 'Anglo-Saxon' speculators, forcing a widening of the currency bands in the ERM.

When Mr Balladur and the German Chancellor, Helmut Kohl, meet on Thursday, they will be intent on demonstrating that 'the alliance is alive and well and shaping Europe', said Frank Vibert, of the European Policy Forum, an independent free-market think-tank. 'It is easy to under-estimate the extent to which there really is a broad degree of co-operation between France and Germany and there is little likelihood of the duo falling apart,' he said.

What Mr Balladur now needs is public reassurance from Mr Kohl that the timetable for European Monetary Union has not been altered, despite the Chancellor's recent statement to the effect that the process might be delayed.

With Maastricht falling into disrepute in voters' eyes, Germany is considering a big diplomatic initiative to relaunch the Community at a special summit in Brussels this autumn. Speculation is rife that Bonn wants the inter-governmental conference, due in 1996 to review Maastricht, to begin much earlier, and Mr Balladur will want to ensure that any such initiatives are made jointly.

Talk of a political falling-out between the two countries always generates speculation about a new role for Britain in setting the EC agenda. London may not be invited to join the cosy Paris-Bonn club, but the Government is already getting a better hearing in the Community, where the agenda has moved in its favour.

The recession and chronic unemployment of 23 million have forced governments to think hard about competitiveness in the European economy. Governments which fought hard for social protection in the Maastricht treaty are now trying to reduce the costs of manufacturing.