Doubts on economic pact shake markets in Europe


LONDON -- Growing doubts that the economic-unification treaty will be approved in its present form roiled financial markets in Europe again yesterday. The increasing concerns about the treaty, negotiated last year at the Dutch town of Maastricht, also left businesses uncertain about how to plan for the future.

The erosion in public support for the plan fueled already heightened fears in the markets that interest rates would have to rise in Britain, Italy and perhaps France. The Bank of England intervened in foreign currency markets yesterday for the first time since the value of the German mark began surging last week.

The intervention helped stabilize the pound at 2.794 marks at the close of trading in London. That is just above the level at which the British government would be obligated to raise interest rates under the European exchange-rate mechanism, which commits nations to keeping their currency values within a specified range.

Norman Lamont, the British chancellor of the exchequer, said yesterday that the nation would not consider devaluing the pound or leaving the European exchange-rate mechanism. But many analysts think there would be pressure to devalue the British, Italian and perhaps French currencies, or to abandon the exchange-rate agreement altogether, should France reject the Maastricht Treaty.

After three days of sharp losses, stock and bond markets in Europe steadied somewhat, although traders said the mood remained jittery.

In London, the Financial Times-Stock Exchange index of 100 leading shares closed 4 points higher, at 2,285, after hitting its low since the Persian Gulf war on Tuesday. Markets in Paris and Frankfurt also eked out tiny gains.

But analysts said that there was little hope for a rebound in prices or investor confidence soon and that both financial markets and companies would be hostage for the next month to fears that France will reject European unification when the treaty is put to a referendum Sept. 20.

One day after four polls in France showed a clear erosion in public support, another poll released yesterday, conducted for Le Point magazine, said 52 percent of those who had made up their minds would vote to reject the treaty, the highest percentage so far in favor of a no vote.

Should France reject the treaty, it would almost certainly doom, at least for now, efforts to create a single currency and to %J continue to unify the economies and governments of the 12 European Community nations.

Doubts about unification have become apparent for months in other nations as well, including Germany, where some officials have expressed second thoughts about giving up the mark in favor of the single European currency envisioned by the treaty, which was agreed to by the leaders of the 12 European Community nations in Maastricht last year.

In Denmark, which shocked Europe by narrowly rejecting the treaty in a referendum in June, polls have shown that sentiment against the Maastricht agreement is growing even stronger.

Analysts said the uncertainty was another blow to Europe's recession-shaken business community, which, because of the increasing questions about monetary policy and the pace of European integration, is starting to encounter difficulty in making decisions about financing and long-term investment.

"It's quite negative for growth in general and for the financial markets in particular," said Jean-Francois Mercier, an economist at Salomon Brothers International in London.

"Not only is it putting pressure on the currencies, but fears of an interest-rate rise at a time when real interest rates are already high could only affect corporate financial planning, undermine business confidence and perhaps affect planning on hiring and investment."

Immediately after voters in Denmark rejected the treaty, some of Denmark's largest companies delayed or canceled plans for expansion, citing uncertainties about the course and pace of European unification and their nation's role in it. The Lego Group, for example, postponed a decision to build a factory and a training center.

Analysts said that a rejection of the treaty next month in France could force a similar reassessment by companies throughout Europe.

The death of the Maastricht Treaty would not undo the progress toward a unified European market already accomplished in recent years, including the end of most trade barriers by the end of this year.

But by slowing or stopping the push for a single currency and a centralized monetary policy, it could accelerate the flight to the mark, now seen as the world's most stable currency.

It could also force governments of some key countries, including Britain, Italy and France, to make difficult choices between maintaining the value of their currency against the mark -- a step that would most likely mean raising interest rates -- or devaluing their currencies, a step that would be politically less painful but that could lead to higher inflation in the long run.

The leading European governments are pledged to maintaining the stability of their currencies relative to the mark, even if that means raising interest rates.

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