LONDON -- Europe's monetary system held together yesterday despite taking another battering from currency speculators, but it remained headed toward a showdown with the markets next week.
The primary target of the speculators, the French franc, was propped up by concerted action from the French and German governments and their central banks. The two nations issued a public statement yesterday reiterating their commitment to maintaining the relative values of the franc and the mark.
The mark-franc link is considered the core of the monetary system, under which nine European currencies seek to maintain stable exchange rates to make trade easier and to prepare for the goal of a single currency. A forced devaluation of the franc, coming after periodic speculative onslaughts against the system over the last year, would leave the system with little credibility and might even lead to its collapse.
Yesterday's French-German statement was backed up by large purchases of francs by the two central banks, a step that helped keep the currency's value from falling. France also raised an overnight interest rate in an attempt to make it more expensive to speculate against the currency with borrowed money.
The actions kept the speculative pressure from escalating beyond the intensity reached Thursday. That day, despite repeated central bank intervention, the markets at times seemed poised to overwhelm the franc and force the French government to reduce its value relative to the mark.
At the close of yesterday's trading in Europe, the franc was trading at 3.4170 a mark, approaching the minimum value of 3.4305 required by the Exchange Rate Mechanism.