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Monday, 26 November, 2001, 14:48 GMT
Luxembourg's secret euro plan
Luxembourg
Luxembourg is finally destroying its hoard of banknotes
Luxembourg was prepared to break up its monetary union with Belgium at the height of the crisis in Europe's exchange rate mechanism (ERM) in 1993, the country's prime minister has revealed.

The news comes as Luxembourg, the smallest member of the eurozone, revealed that in September it destroyed thousands of coins and notes it was hoarding in the event its monetary union with its larger neighbour collapsed.


I threatened that very night to sever our monetary union with Belgium and to follow Germany and the Netherlands

Jean-Claude Juncker
Luxembourg prime minister
With the launch of the euro as a cash currency on 1 January 2002, Luxembourg has decided that it no longer needs to keep a stock of its own currency in reserve.

But the Luxembourg Prime Minister, revealed that his country had been secretly printing its own banknotes for 20 years in case the eurozone economies blew apart.

It has maintained a monetary union with Belgium since 1921.

ERM crisis

Prime Minister Jean-Claude Junker told the AFP news agency that he had indeed threatened to sever Luxembourg's links with Belgium just once, in August 1993, when the Exchange Rate Mechanism was near collapse.

Luxembourg's prime minister, Jean-Claude Juncker
Juncker: threatened to leave currency union with Belgium in 1993
The ERM was intended to link Europe's currencies in a stable relationship in the run-up to monetary union following the l992 Maastricht Treaty.

But it came under pressure in September 1992 when the UK pound and other smaller currencies were forced to devalue after massive speculative pressure on international markets.

The problems continued into 1993, with the French franc also coming under pressure, until the members of the ERM effectively abandoned it by widening the bands it operated between from 2.5% to 15%.

Secret plan

Mr Juncker told AFP that in August 1993 he was informed that Germany and the Netherlands were planning to quit the ERM at the request of France at a meeting of European finance ministers.

That, he said, could have torpedoed the whole system - and with it any chance of getting back on the path towards financial orthodoxy and the euro.

"I threatened that very night to sever our monetary union with Belgium and to follow Germany and the Netherlands," he said.

"We could have done it, because since 1982 we had been printing Luxembourg notes that would have appeared the day following such a decision," Mr Juncker added.

Luxembourg believed that the euro was on the verge of collapse - but the system endured and now the euro is finally being launched as a cash currency.

Luxembourg is likely to be one of the biggest beneficiaries of the euro.

The country - whose official languages are French, German and Letzebuergesch - has a thriving financial services business, receiving deposits from its rich neighbours in France, Germany and the Netherlands.


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14 Nov 01 | Business
30 Aug 01 | Business
29 Aug 01 | Business
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