Irish Pound Falls Through EC’s Currency Safety Net

BRUSSELS — Turmoil in the European Community’s currency grid has claimed another victim and cast fresh doubts on the viability of the system and plans for an economic and monetary union in the coming years.

The Irish pound, or punt, was the latest European currency put on the chopping block after the government agreed late Saturday on a sharp 10% cut in its value.

It was the biggest devaluation of a single currency since the European Monetary System was set up in March, 1979, to bring stability to the monies of the dozen members of the EC trading bloc.

“We gave it all we had,” said Irish Finance Minister Bertie Ahern after admitting defeat in the battle to defend the punt against intense speculation in recent months.

The realignment of the punt, which makes foreign goods more expensive for Irish residents, goes into effect today. It does not change the value of the dollar.

By settling on such a hefty devaluation of the punt, European finance officials are hoping to bring some peace to their currencies, which have been under attack by speculators since last fall.

But analysts predicted it would amount to only a temporary cease-fire.

“It’s going to be a period of continuous turmoil,” said Nigel Rendell, international economist at James Capel & Co. in London. “The currencies are slowly being eliminated or devalued.”

Last September, the British pound and the Italian lira were drummed out of the grid under persistent pressure by speculators. In November, the values of the Spanish peseta and the Portuguese escudo were snipped by 6%.

The monetary system seeks to prevent wide shifts in exchange rates of the member nations and keep inflation and interest rates under control. Central banks are required to prevent their currencies from falling outside certain ranges by intervening--buying and selling currencies--in the exchange markets.

The punt had fallen to the bottom of its fluctuation band as investors, fearing the value would go down further, sold the currency for stronger ones.

Speculators who have been hunting weak currencies may now turn their attention to the Danish krone and, to a lesser extent, the French franc. Both have been under fire over the past months.