Eyskens Says us Prime Rises Will aid Currencies

Belgian Finance Minister Mark Eyskens warmly welcomed this week’s increase in U.S. Prime rates, calling it a move that went beyond the Group of Five and Canada Paris accord on stabilising currencies.

The rate rise would underpin economic and financial policy convergence among major countries, he added.

In an interview with Reuters, Eyskens also made clear he believed the countries involved in the accord - the U.S., Japan, West Germany, France, Britain and Canada - had agreed “tentative” fluctuation ranges for exchange rates.

Eyskens was speaking before hosting an informal meeting of European Community finance ministers and central bank chiefs in Belgium this weekend focusing on the international monetary situation and proposals for strengthening the European Monetary System (EMS).

Asked about the dollar’s recent fall on currency markets, Eyskens said he believed the Paris agreement was proving “more or less workable” despite what he called evident disagreements over U.S. Economic and monetary policy between Treasury Secretary James Baker and Federal Reserve Chairman Paul Volcker.

Besides Baker’s public statements that had dramatically influenced exchange markets, trade tensions between the U.S.And Japan had also caused the dollar’s fall, expecially against the yen, he said.

But he expressed optimism that Washington and Tokyo could reach a compromise in their row over semi-conductor trade. “I think agreement is quite possible,” he said.

Eyskens said he was “very agreeably surprised” by this week’s quarter-point increase in U.S. Prime rates despite the obvious negative consequences for debtor countries.

“It is a positive element which goes further than the (Paris) Louvre agreement …It is the market taking account of its content,” he said.

He added that coordination of interest rates was a fundamental element of economic and monetary convergence between leading industrialised economies.

“A policy of maintaining exchange rates within fluctuation ranges is not possible if it is not accompanied at least by a more coordinated policy of interest rates,” he said.

Eyskens made clear he believed the G-6 countries had agreed in Paris on ranges in which to hold their currencies.

He said the end of the February 22 Louvre accord, in which the partners agreed to cooperate closely to foster exchange rate stability around current levels, clearly alluded to a “system of tentative (fluctuation) margins.”

He added the meeting and the statement would have been meaningless if the G-6 had not discussed the technicalities of implementing it.

Eyskens said there was growing economic convergence among leading industrialised countries pointing towards greater order in the international monetary system.

“That doesn’t mean we are ready to restore Bretton Woods (the post-World War Two system of fixed exchange rates), but within the (International Monetary Fund) Interim Committee we are thinking in terms of target zones, fluctuation ranges to be implemented and defended,” he said.

The Interim Committee meets next week in Washington ahead of the IMF’s Spring meetings, and Eyskens said the EC ministers would prepare for the gatherings at this weekend’s talks.

He said he hoped for wide-ranging talks on the future of the EMS at the weekend meeting, based on proposals from the EC’s Monetary Committee and Committee of Central Bank Governors for strengthening the system through technical and institutional changes.

Eyskens said he expected EC Commission President Jacques Delors to submit proposals for fully liberalising capital movements within the 12-nation bloc and made clear he shared Delors’ view that this must be accompanied by a reinforcement of the EMS. “Both are totally linked. Liberalisation without strengthening the EMS would destabilise the Community,” he said.