EMS crisis 'may delay Maastricht'

THE EUROPEAN Commission warned yesterday that the Maastricht timetable for monetary union could be delayed by the crisis in the European Monetary System and the recession across Europe. It expects EC unemployment to leap to 11 per cent this year.

Britain was singled out as having particular problems, but the Commission's annual economic report predicted a 'slow and painful emergence of the United Kingdom from its prolonged recession'. The Commission's forecast is more optimistic than most on growth, but more pessimistic on unemployment.

The Commission hints that the Chancellor should begin to raise taxes to control the budget deficit. It argues that the Government's spending plans 'suggest only a slow return to fiscal balance if tax policies remain unchanged'. Moreover, even that improvement could be in doubt if low growth persists.

The Commission warns: 'Greater revenue than consistent with unchanged policies may therefore be required.'

The report linked a crisis of confidence in the pound to repeatedly disappointed expectations of recovery earlier in the recession that ultimately provoked sterling's departure from the EMS in September, and the collapse of the Government's economic policy.

Reviewing the Government's new policy, the Commission implicitly backed City demands for a clear statement of how the Chancellor is assessing different indicators. 'A simple range of specified indicators without a clearer public understanding of how policy will be formulated is unlikely by itself to re-establish credibility,' the Commission said.

Announcing the Commission's economic projections for 1992-93, Henning Christophersen, the Economics Commissioner, said the credibility of governments' economic policies had been severely compromised by the monetary crisis. Developments had 'called into question the EMU timetable'.

The convergence criteria that are a prerequisite of stage three of monetary union - the move to a single currency and a European central bank - are proving hard for most countries. Mr Christophersen said he was thinking of tightening up the monitoring procedures but success was 'up to the member states'.

The Commissioner stressed the importance of the EC growth initiative and urged member states to act decisively to prove that monetary union was on track and above all to ratify the Maastricht treaty.

But such dynamism will be difficult, given the Commission's economic forecast for the EC, which sees average GDP growth at 0.8 per cent this year against 1.1 per cent in 1992.

Mr Christophersen said one way out of recession was through some kind of global accord between the EC, the US and Japan. Tokyo, he said, had a wide margin for manoeuvre.

----------------------------------------------------------------- COMPARING ECONOMIES WITHIN THE EC ----------------------------------------------------------------- GDP growth % Unemployment % Inflation % 1992 1993 1992 1993 1992 1993 UK -0.9 1.5 10.8 12.25 5.1 5.0 France 1.9 1.0 10.1 10.75 2.6 2.75 Germany 1.7 0.0 7.5 8.5 4.8 4.25 Spain 1.2 1.0 18.0 19.5 6.0 5.5 Italy 1.1 0.75 10.2 10.5 5.3 5.75 EC average 1.1 0.75 10.1 11.0 4.6 4.5 -----------------------------------------------------------------

Commentary, page 25