German and Dutch central bankers yesterday came out forcefully against splitting the eight-year term of the future president of the European Central Bank, amid signs that failure to settle the issue was beginning to rattle financial markets.
"There are clear rules. The first presidency, as all other presidencies, is for eight years. There is no leeway," said Mr Reimut Jochimsen, a member of the Bundesbank council. He said the row had damaged the credibility of the single European currency, whose initial 11 members are to be named at an EU summit in Brussels next weekend.
The Bundesbank has already unsettled markets by signalling that some members of its council oppose a deal that would see Mr Wim Duisenberg, the Dutch president of the ECB's forerunner, the European Monetary Institute, step down after four years to give way to Mr Jean-Claude Trichet, the Bank of France's governor.
"This is beginning to affect the credibility of the single currency process," one senior fund manager said. A London-based economist of a large US investment bank said investors in Asia were asking questions about the failure to agree on the ECB job.
Mr Tony Blair, the British prime minister who holds the rotating European Union presidency, discussed the ECB appointment in a 15-minute telephone conversation yesterday with Mr Helmut Kohl, the German chancellor. British officials said there was so far no deal ahead of this weekend's summit.
In public at least, the Dutch camp remains adamant that Mr Duisenberg should get the job and the ECB presidency must not be divided. "It would be an extraordinary threat to the ECB if the eight-year term is split up," said Mr Nout Wellink, president of the Dutch central bank.
Senior fund managers in London and New York said the uncertainty had raised doubts over whether the ECB could start operations as scheduled on July 1st. One fear is that the absence of a deal could lead to a large switch in funds from European currencies to the dollar, ending more than two years of relative currency stability in Europe.
Mr Chirac triggered the conflict late last year by nominating Mr Trichet against Mr Duisenberg, who had the support of all 14 other EU states.
Financial operators said they were worried that EU leaders were concentrating too much on producing a facesaving deal for Mr Chirac and not enough on maintaining market confidence in the ECB's independence.
Under a "gentlemen's agreement" that had begun to take shape, Mr Duisenberg would be awarded a full eight-year term with an understanding that he would voluntarily step down halfway through his period in office.
The German cabinet will today nominate Mr Otmar Issing, the Bundesbank's chief economist and an anti-inflation hawk, to be an ECB board member.
