Journey toward united currency for Europe hits some rocky spots. UNLIKELY ALLIES

An unlikely alliance between the governor of the Bank of England and the head of the West German Bundesbank could dash French hopes of swift progress toward European monetary union and dreams of a common currency. Robin Leigh-Pemberton, once active in local Conservative Party politics and now central bank chief, and Social Democrat Karl Otto P"ohl, a fierce upholder of the Bundesbank's independence, find themselves waging similar campaigns against some of the grander ideas for a barrier-free Europe in 1992.

Central bank officials in Europe said the two men believe basic steps to free capital movements and reinforce economic cooperation must be taken first. They said this argument appeared to be gaining ground in the 17-member ``Delors Committee'' set up to discuss monetary union by European heads of state at June summit in Hannover.

``Nobody is trying to scuttle the idea of monetary union,'' said a central banker who declined to be identified. ``But a majority of committee members have considerable sympathy with the pragmatic approach to reform.''

The committee, chaired by European Commission president Jacques Delors, is made up of all 12 European Community central bank governors, three outside staff experts, and two Commission representatives. Their task is to devise a blueprint on how to pursue monetary union before next June's European summit in Madrid, but political observers say it will be difficult for Mr. Delors, a passionate advocate of reform, to push ahead fast.

``It is likely we will one day have a single European currency,'' said Nigel Rendell, an international economist at London brokers James Capel & Co. ``But I think we are talking decades rather than years.''

Prime Minister Margaret Thatcher's steadfast refusal to join the European Monetary System (EMS) regulating exchange rates would appear to pit Britain against West Germany, which has repeatedly called for having the pound included.

But some central bank sources in Europe say the stance by Mr. Leigh-Pemberton and Mr. P"ohl on other aspects of monetary union are remarkably similar and there are signs that their practical, step-by-step approach is backed by the Netherlands, Belgium, and Spain.

Leigh-Pemberton, in a speech in Luxembourg last week, said the European Community should pursue ``immediate practical steps'' toward integration rather than the ultimate goal of a common currency and European central bank.

``It is not so much delay in making progress toward monetary union, as a premature obsession with that process, that is likely to be an impediment to the internal market,'' he said.

Britain's finance minister, Chancellor of the Exchequer Nigel Lawson, was blunter at the end of October, when he said: ``There are some who claim that the single market can operate successfully only if Europe moves toward monetary union, by which they mean a common currency.

``This is manifest nonsense: a view held only by politicians who know little about economics and promoted by economists who are oblivious to the realities of politics.''

In Europe, France is the country that is pushing hardest toward the goal of monetary integration.

The workings of the Delors group, meeting monthly at the Bank for International Settlements in Switzerland, are secret, and so far no proposals have been formulated. Talks appear to center on practical steps set out by members and the possible problems that the adoption of these modest measures could pose.

Freer movement of capital in the Community - there are still exchange regulations in countries such as France and Italy - could lead to problems, according to the ``gradualist,'' or pragmatic, camp on the committee.

This group holds the view that nations with heavy public debt, such as Italy, may have to raise interest rates to prevent a flight of capital and to attract new borrowing.

That could spark tensions within the EMS and raises a fundamental question of whether monetary policy, covering interest rates, can be coordinated without harmonization of fiscal policy - budget and taxation matters.

Mr. Lawson and Mrs. Thatcher oppose a federalist approach to budgets, which they say would undermine sovereignty.

A Spanish member of the committee, former finance minister Miguel Boyer, has also come down in favor of the gradualist approach, saying it would be absurd to fix exchange rates too early and give up their role as a policy tool.

Also, critics of a plan to set up a European central bank to administer a single currency, probably based on a version of the European Currency Unit, accuse France of attempting to break West Germany's dominance in the EMS.

Central bank sources said that Delors is aware that it will be difficult to avoid such arguments when a report is drafted.

``I think Delors realizes he is dealing with 12 very diverse countries in terms of central banks and politics,'' said Mr. Rendell. ``To reach the destination he will have to take it step by step.''

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