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Zigzag path to the euro

The irrevocable fixing of exchange rates for currencies entering European monetary union (Emu) is much too important to be left to the markets. That is the conclusion of most policymakers looking at the task the EU has set itself between now and January 1 1999.

But can these learned folk come up with a better solution? If they have, they're keeping it to themselves. The debate on how to fix these parities is going right up to the wire, inviting the very market turbulence governments would like to avoid.

Meanwhile, the speculators are gathering forces and studying the literature. Would it be surprising if they attempted one last big trade against this political white elephant? The politicians know from the bitter experiences of 1992 and 1993 that any weakness in their decision will be punished mercilessly, first by a handful of hedge funds, then by the rest of the market. Market forces can only be kept in equilibrium if they are pitted against themselves.

The Emu politicians have a problem. They are saddled with a Maastricht Treaty that stipulated the single currency (since dubbed the euro) will be exchanged for the Ecu one for one.

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