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French Franc to Be Devalued Against 7 Europe Currencies

April 07, 1986|Associated Press

OOTMARSUM, The Netherlands — France won agreement from seven West European nations Sunday to reduce the value of the franc by as much as 6% in relation to the others' currencies, officials said.

The deal, struck on the second day of negotiations in this eastern Dutch village, is expected to give French industry a competitive boost in European trade.

The devaluation agreement has no direct effect on the currencies' value in relation to the U.S. dollar because the United States is not part of the eight-member European Monetary System.

In Paris, meanwhile, the Economics Ministry announced additional French economic reforms to cut the budget and give corporations more flexibility to manage their foreign currency transactions.

New French Economic Policy

Finance Minister Edouard Balladur of France told reporters in Ootmarsum after the accord was announced that Premier Jacques Chirac's new conservative government considered the devaluation an "indispensable" part of its economic policy.

H. Onno Ruding, the Dutch finance minister who led the negotiations, told a news conference that he was pleased with the outcome.

"I think the changes were moderate, realistic," he said. "They make sense."

The agreement announced by Ruding calls for a 6% drop in the value of the French currency against the West German mark and the Dutch guilder.

The franc will go down by 4% in relation to the Danish kroner and the Belgian and Luxembourg francs.

The franc will be devalued by 3% against the Italian lira and the Irish punt.

Britain and Greece are partial members of the European Monetary System but do not participate in the system's exchange-rate mechanism, so Sunday's agreement has no direct effect on the value of their currencies.

Conference sources, speaking on condition that they not be identified, said France had held out on Saturday for as much as an 8% devaluation of the franc.

Italy and some others refused to go along, so 6% was offered as a compromise.

The Economics Ministry, meanwhile, abolished a tight system of controls that had built up in France since the 1950s to protect the franc from speculators.

One reform repealed a law requiring French companies to convert the proceeds from foreign sales into French francs within 15 days after shipment.

Often French customers had been scheduled to make payment for goods after the 15-day limit. Exporters then had to borrow foreign currencies and convert them to francs or agree to sell the foreign currency for delivery of French francs in the future.

France also announced a program to cut the government budget by about 1.5% in 1986, the equivalent of about $2 billion, in an attempt to balance the budget within three years, excluding interest payments on the state's indebtedness.

Boost French Exports

The statement did not specify where the spending cuts would be made.

In Ootmarsum, Balladur said the drop in the value of the franc, particularly the 6% reduction in relation to the West German mark, would make French exporters more competitive in West European markets.

French goods will become less expensive with payment by marks and the other six currencies.

The last time the European Monetary System's currencies were adjusted in value was July, 1985, when the Italian lira was reduced by about 8% in relation to the seven other currencies.

Negotiations were held in Ootmarsum, near the West German border, because Common Market finance ministers already were scheduled to gather in this village for two days of informal discussions on a range of financial topics.

West European currency trading came to a virtual standstill Friday after it was announced that the European Monetary System's central banks had decided to suspend their usual foreign exchange transactions.

Spain and Portugal, although members of the Common Market, were not involved in currency talks because they are not members of the monetary system.

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