How currencies join the ERM

Date: 09/05/1996

The applicant calls a meeting of the monetary committee, made up of senior finance ministry, central bank and European Commission officials, to agree a central rate and the band width.

The Commission and the Bundesbank have learned a lot from previous entry negotiations.

When the UK government took sterling into the ERM at the existing market rate of 2.95 deutschemarks and with 6&percent; bands in October 1990, everyone agreed, even though many regarded the rate as unsustainable.

A furious Jacques Delors attacked John Major, who was then the UK's finance minister, for announcing the central rate and the desired band before the crucial meeting at which the rate was agreed. Protocol, if not the rules, required that these issues must be debated and not imposed.

Portuguese Finance Minister Jorge Braga de Macedo took a leaf out of the UK's book when, in April 1992, he told the world before the monetary committee met that the escudo's central rate in the ERM would be below the prevailing market rate.

Although he was rapped over the knuckles by the committee for doing so, the escudo was allowed in at close to the rate he sought.

Don't expect it to be as accommodating next time.