French and Germans seek middle ground

France and Germany are locked into last-minute negotiations this weekend to reach a compromise on job creation to keep Europe's single currency initiative on track. They also seek to avert what could be a public relations embarrassment at the EU summit in Amsterdam tomorrow.

In their meeting on Friday, French President, Jacques Chirac, and German Chancellor, Helmut Kohl, were unable to reconcile French demands for a strong statement on employment with German limits on budget deficits in the single currency, which is due to start in January 1999.

"I am confident we will find a solution, which we will sign on Tuesday," Kohl said.

In the best tradition of last-minute EU diplomacy, negotiators are working through the weekend. And the Union's 15 finance ministers will meet late on Sunday to overcome this potential obstacle to the single currency, put up by France's new Socialist-led government.

"If they can clinch this deal, Amsterdam would give the markets the momentum they need," said Eden Abrahams, European strategist at the G- 7 Group in Washington.

Moving quickly after his election on 2 June to convince voters of his determination to fight unemployment, French Prime Minister, Lionel Jospin, called for the jobs declaration to tilt the debate away from budget-deficit targets, and toward the concerns of ordinary people.

If approved, the jobs declaration would become part of the EU's governing treaties. It would provide a counterpoint to the German-inspired "stability pact," which prevents countries using the single currency from running up budget deficits in excess of 3 per cent of GDP.

The negotiations between Bonn, Paris and Brussels echoed the sense of urgency that accompanied the stability pact itself, which was hammered out on the eve of the EU leaders' summit, in Dublin in December.

The Dutch government, which will wrap up its six-month tenure of the EU's presidency in Amsterdam, put forward a jobs resolution that would place "the issue of employment at the top of the political agenda".

The Dutch draft calls for the modernisation of the EU's social security systems, the dismantling of barriers to trade, more vocational training and hiring incentives in the form of lower taxes and insurance premiums.

"There will be no new jobs fund or plan to invest in major works," European Commission President, Jacques Santer, said.

Beyond threatening to disrupt the summit, analysts said, France's focus on employment fires doubts whether Europe can persuade people to put up with the cutbacks in government spending mandated by the monetary union agreements. Copyright: IOS & Bloomberg