THE Bundesbank yesterday said EU members remaining outside European monetary union should be denied access to Target the proposed payments system for the euro, on the same terms as EMU members.

Mr Johann Wilhelm Gaddum, Bundesbank deputy president, named no countries, but his comments are bound to exacerbate the conflict between likely EMU members, such as Germany and France, which oppose unrestricted access to Target for nonmembers, and countries likely to stay out of monetary union such as Britain and Denmark.

In the German central bank's first public comment on the issue, Mr Gaddum said the argument that non members of EMU should have access to the credit facilities of the future European central bank "contradicts the sovereignty of a currency zone which prevails and is recognised around the world".

In a speech on German capital markets, he added: "There is no country in the world in which non members of a currency area have a right to participate in the money creation of a foreign currency area.

Mr Eddie George, governor of the Bank of England, warned this month that the dispute could undermine co operation between European central banks and create an unnecessary split between EMU members and non members.

The Bank of England refused to comment. However, Mr Tim Sweeney, director general of the British Bankers Association, said: "We see Target fundamentally as a single market mechanism and therefore we do not see any reason why there should be any discrimination for those outside (the euro area)."

Germany and France want strict conditions attached to access to intra day liquidity in the planned euro currency to prevent this spilling over into overnight credit. Central to the dispute is the fact that Target is not just a cross border payments system but the route through which the European central bank will conduct monetary policy.

A British Treasury spokesman said yesterday: "Discussions are continuing on Target. It is hoped that decisions will be reached by Christmas."