WHAT promises to be one of the world's leading financial institutions is taking shape, even though it does not yet have an office in its hometown here.
It is called the European Monetary Institute (EMI), a body that could evolve into a central bank for Europe and possibly rival the United States Federal Reserve.
It is a grand plan, and from the looks of things lately perhaps a bit too grand. Even as politicians last month inaugurated the European Union to succeed the European Community, they have had to confront growing doubts about whether they can ever crowd the diverse economies of Western Europe under the umbrella of a single central bank.
For the moment, EMI will play the role of junior central bank. It will advise more than supervise. It is intended to do three things: intensify Europe's ongoing coordination of monetary policy; take over the technical functions of the European Monetary Cooperative Fund; and prepare the way for the European central bank. This last point is clearly the aim of the whole process. It is also certainly a long way off.
The last several months have not been good ones for Euro-optimists.
To move toward an eventual single European currency, EC countries had created a formal mechanism to allow their marks, francs, pounds, and so on to move in tandem. That system is now in tatters. A monetary crisis in the summer of 1992 forced the British pound and the Italian lira out of the system and a similar crisis this summer threatened to do the same for the French franc.
RATHER than junk the system, the EC decided to change the rules. Currencies, it said, could fluctuate up to 15 percent on either side of the central rate - a much more flexible system than the 2.25 percent margin allowed before.
``It shows all of us that we have not advanced as far as the politicians thought we had,'' says Peter Pietsch, senior economist of Commerzbank in Frankfurt. But ``it's much better to realize this now rather than later.''
Having the economies of the European Union members converge is key to getting them to accept a single currency. A real European central bank cannot control the economy very well until the single currency is in place.
According to the Treaty of Maastricht, which lays out the timetable for the European Union, the EMI is supposed to become a central bank between Jan. 1, 1997 and Jan. 1, 1999. Mr. Pietsch and other analysts are increasingly doubtful the timetable can be met.
Europe's immediate problem is that its members' economies are moving at different speeds.
Britain is pulling out of recession while the continental countries slog through an economic trough. France is at a point where it could cut interest rates and not cause inflation, economists say. But it is trying to keep the franc level with the German mark. And the Germans, still spending mightily because of the costs of reunification, are reluctant to cut rates because it could spark inflation. These regional differences will be difficult to overcome.
Then there is the ticklish political problem. European Union nations will have to make some substantial changes to meet the Union's economic criteria.
GERMANY looks to be close to filling the requirements. But Belgium has a ratio of debt to gross domestic product that is twice that of the Maastricht Treaty's recommended 60 percent.
France has recently moved to make its central bank more independent, central-bank independence being a hallmark of the new Europe. But for Britain to do the same will require that Parliament agree to give up some of its oversight authority.
Even Germany is stuck with the prospect of one day trying to convince its citizens to give up their beloved deutsche mark for a new European currency. ``There are very few national symbols left in this country and among the few is the deutsche mark, which stands for the successful postwar period,'' a German official explains.
Europeans are still not sure how active a role the EMI should play in pushing a central bank.
At a recent banking conference here, French Economics Minister Edmond Alphandery said the EMI should ``promote'' the use of a common European currency. Eddie George, governor of the Bank of England, was much more cautious, saying that would be ``extremely unwise.'' Nevertheless, sometime next year, about 30 staffers now attached to the Bank for International Settlements will set up shop here to begin setting up the EMI. The success of their efforts will be in large part determined by how well European politicians can harmonize their economies.