The ERM Crisis: Bundesbank: Tough line remains

FRANKFURT - As a hurricane of speculation smashed across Europe's financial markets yesterday, the Bundesbank refused to give a definite signal that it was prepared to save the exchange rate mechanism, writes John Eisenhammer.

Massive intervention in support of the battered currencies, and the announcement that it was willing to let German money market rates fall below the discount rate, which usually sets a floor for German interest rates, showed that the Bundesbank had not given up the fight. But the absence of a clear statement that it would back these moves with a more permanent policy switch suggested that the central council was not budging from the tough line it had set on Thursday.

The Bundesbank decided then not to make the move everyone had been waiting for and cut its discount rate, thereby triggering the crisis.

Hans-Jurgen Koebnick, a central council member, yesterday said this decision 'was taken with a clear majority'.