Finance Ministers to Decide Fate of EC Currency System : Economics: Options range from overhaul to abandonment. Political fallout from either move would be enormous.

European Community finance ministers will meet here today for a crisis session to decide the fate of the 14-year-old European Monetary System.

Economists expect them to either admit defeat to the world’s currency market dealers and abandon the system, under which the values of nine currencies are allowed to fluctuate only in narrow bands against one another, or completely overhaul it.

Many currencies, including the French franc, fell Friday as traders rushed to sell them in anticipation of government-ordered devaluations.

A German Finance Ministry spokesman said in Bonn that the ministers and central bank governors would convene at 5 a.m. PDT, as requested by Germany.

The Community’s monetary committee, which looks after the technical management of the Exchange Rate Mechanism (ERM), met for seven hours Saturday to study the options for change.

Lamberto Dini, deputy governor of the Italian central bank, told reporters, “We have studied the problems and there will be conclusions tomorrow,” referring to today’s emergency meeting.

The European Monetary System, of which the ERM is a part, is one of the few concrete results of the Community’s push for union and is the precursor of Economic and Monetary Union, with its single EC currency, planned for the end of the century.

The political fallout from a decision to make major changes in the way the monetary system works, let alone to scrap it altogether, would be enormous.

Abandoning the system would be a political disaster for the Community, while devaluing the five currencies under attack would show speculators that they have the power to set the political and economic agenda.

The options between include widening the currency fluctuation bands and revaluing some currencies, led by the German mark, while devaluing others.

French Prime Minister Edouard Balladur, whose country’s currency lies at the heart of the system along with the mark but has been the chief target of the latest round of attacks, has threatened to quit rather than devalue.

Portuguese Prime Minister Anibal Cavaco Silva told reporters in Vila Real in northern Portugal that he hoped “Germany would see that it has to make a contribution toward the stability of the system.”

“We are on the side of those who at this moment think that a very strong union is necessary to save the system, but this depends to a great extent on the German central bank,” the Portuguese news agency quoted him as saying.

“Without doubt some speculators are betting on destroying the system,” he added.

The speculators’ attack on the system climaxed after the fiercely independent German central bank Thursday refused to come to the aid of Bonn’s partners with the expected cut in its key discount rate desperately needed by member states whose economies are racked by recession.

The subsequent barrage of selling pinned the franc to the floor, battered the Danish krone and Belgian franc and threatened to eject the Spanish peseta and Portuguese escudo from the system.