Germany lays plans for EMU breakdown

TONY BARBER

Europe Editor

Fresh doubts over the prospects for European monetary union arose yesterday after a senior German politician indicated his government was making contingency plans in the event that the single currency did not start as planned in 1999.

In remarks published in the Wall Street Journal, Wolfgang Schauble, the leader of the ruling Christian Democrat party admitted that the German government had considered what it might do if the deadline was not met, but stressed that he believed it was still possible for monetary union to be launched in January 1999. He warned that if politicians began to talk openly about delaying the project, "people will no longer believe that it can be done".

However, Eddie George, the Governor of the Bank of England, warned last night that forcing a single currency on European economies before they were ready could be destructive to the EU. Speaking on the BBC TV news, Mr George said: "I think there are genuine risks that it could prove to be divisive and actually lead to a loss of coherence in Europe rather than to strengthen Europe as a co-operative entity."

Mr Schauble, seeking to defuse the controversy, said in a statement yesterday that a decision was years away: "The government has always said the decision on which countries will take part in EMU will be made in 1998 as laid down in the Maastricht treaty." However, he added: "We have never left any doubt that both the criteria for EMU and the timetable must be adhered to. But if in 1998 there is a conflict between timetable and criteria, it should not be resolved at the expense of the criteria."

Debate over the shaky prospects for EMU is polarising between those who think that monetary union should go ahead even if the economic criteria are not strictly met, and those who think that in such a case, the timetable should slip.

The prime ministers of Belgium and Portugal suggested yesterday that the single currency would go ahead on schedule even if some countries did not strictly fulfil Maastricht conditions on deficits and public debts. Antonio Guterres, Portugal's Socialist Prime Minister said there was "no chance" for monetary union if such allowances were not made.

He was referring specifically to Belgium, which the European Commission predicts will have public debts totalling 130 per cent of gross domestic product next year, far in excess of the Maastricht requirement of 60 per cent. Mr Guterres said monetary union would not be politically feasible without Belgium's participation.

The Belgian Prime Minister, Jean-Luc Dehaene, said he was confident his country would be a founding member of EMU, despite having the highest public debt of any EU state. "It is the main objective ... of my government," he said.

A growing number of senior EU politicians argue that the EU must be more flexible in interpreting the Maastricht criteria if monetary union is to start on time. However, the German government fears that, if it gives way on this point, German voters may turn decisively against the Euro, as the single currency was provisionally named in December, suspecting that it will be weaker than their much-prized mark.

The President of the European Commission, Jacques Santer, said he expected seven to nine of the EU's 15 member-states to meet the January 1999 deadline. "I think there will be a critical mass of nations that will at least match Japan in terms of gross national product strength," he said.

Mr Santer also challenged those who assert that the struggle of EU governments to meet the Maastricht criteria is killing efforts to reduce unemployment. "Monetary union is a weapon in the fight against unemployment," he said.