From: palst9+@pitt.edu (Pablo Lanza)
Newsgroups: soc.culture.spain
Subject: Devaluando
Date: 22 Nov 92 23:05:15 GMT
Organization: University of Pittsburgh, Katz Graduate School of Business
Originator: palst9@unixd2.cis.pitt.edu


 
        BRUSSELS, Belgium (UPI) -- Spain and Portugal, two of the weaker
members of the European Exchange Rate Mechanism, will devalue their
currencies by 6 percent against other ERM currencies, the Monetary
Committee of the European Community said Sunday.
        Spain's Finance Ministry said the devaluation, to take effect Monday
and agreed upon at a meeting of ERM members in Brussels, was a result of
recent market pressure on the currency and high labor costs.
        It was the second devaluation of the peseta in the space of 10 weeks,
following a 5 percent drop in the peseta's ERM value on Sept. 17.
        The central value of the peseta against the European Currency Unit,
ECU, was to move to 143.386 pesetas from 139.176.
        The Portuguese government also reluctantly bowed to national and
international pressure Sunday and agreed to a 6 percent devaluation of
the escudo against other EC currencies within the ERM.
        The central value of the escudo against the ECU was being reset at
182.194 against 176.844 previously, the EC said.
        The action followed renewed pressure on weaker ERM currencies after
Sweden freed the krona from shadowing the mechanism Thursday.
        The British and Italian currencies were withdrawn from the ERM in the
autumn, and the Danish and Norwegian currencies also came under pressure
because of the Swedish action this past week.
        Ireland managed to avoid withdrawing its punt from the ERM during
Sunday's meeting, although the currency was widely expected to see
further pressure.
        Currencies within the European Exchange Rate Mechanism -- a mechanism
by which central banks intervene when one of the currencies tend to
reach its upper or lower allowed fluctuation limit -- are not allowed to
fluctuate by more than 2.5 percent from their standard rate, which is
fixed against the ECU.
        The decision to go ahead with a devaluation of the currencies came
during an 11-hour Brussels meeting of the European Community's monetary
committee which ended at 2 a.m. Sunday.
        The marathon meeting was called at the request of the Spanish
government. News reports prior to the meeting predicted the Spanish
delegation would demand a 6 percent devaluation.
        Spanish Finance Minister Carlos Solchaga said Spain had not wanted to
devalue until the Italian lira returned to the ERM but Friday's pressure
on the peseta was too much to bear.
        Spain also agreed to lift controls on currency transactions imposed
after the previous devaluation in an attempt to stop speculation with
the peseta.
        ``The government considers the 6 percent devaluation positive,''
Solchaga said after the meeting Sunday in Brussels. ``It was obvious
that the market did not consider the 5 percent devaluation of September
enough to make it competitive again.
        ``The new exchange rate will give the peseta stability and allow an
increase in exports,'' he said.
        The Bank of Spain spent an estimated $3 billion Friday propping up
the peseta as it slid toward its old ERM floor, the El Pais newspaper
said.
        Since the escudo joined the ERM in April, Portuguese Prime Minister
Anibal Cavaco Silva has constantly ruled out a devaluation of the escudo
which has held rock steady amid ERM currency turmoil.
        Justifying his policy U-turn Sunday, Cavaco Silva said the
devaluation was ``unnecessary'' but that his government had agreed to
the move only to show solidarity with the Spanish peseta and to
guarantee the stability of the ERM.
        The Portuguese government has been fighting to drive down the
inflation rate which stood at 11.4 percent last year and was the major
hurdle to joining the ERM. Inflation is this year running at less than 7
percent, according to government figures.
        The Bank of Portugal Friday intervened to prop up the escudo in the
face of fierce speculation on the money markets. The escudo emerged
relatively unscathed from last September's ERM turmoil.
        European central bank officials planned to meet Monday in London for
a week-long conference that will focus on developments in the move
toward European economic and monetary union. The agenda also will
include the development of the ECU and the situation in Eastern Europe
and the former Soviet Union.
        The ERM is intended as the first step towards the European Economic
Union outlined in the Treaty of Maastricht, but currency speculation
prompted by the economic weakness of some recession-hit member states
has undermined its stability.



-- 
    ____________________________
   /                            \       Pablo Lanza    palst9+@pitt.edu   
  /                              \      Katz Graduate School of Business
  |  P E N N S Y L V A N I A     /          University of Pittsburgh