Euro strikes fear of poverty into Bavaria

Rosenheim - Jabbing a thumb towards Italy, just 50 miles across the mountains, a shop steward in a small electronics factory speaks of "fear". People of Rosenheim, a German border town, are afraid of the euro, Rudi Neumeier says.

And with the news that Italy might join the single currency, the fear has deepened. There is talk of a strike in his factory, and growing unrest in the town.

"Bonn says the euro will be good for us. But the people here believe monetary union is dangerous. Nobody thinks the euro will be as strong as the mark, especially if countries like Italy are in. And now the bosses want to take away our sickness benefits," he said, holding up a contract which he says is being broken.

Over at Rosenheim town hall, the message is the same. "People are becoming more and more afraid of this euro. They don't understand what it will mean," said Horst Rankle, a local official, who complains that the expensive Brussels safety rules closed down a local slaughter house.

"We in the towns are having to cut our spending because Bonn needs to meet the Maastricht rules. We cannot build our new kindergarten, and maintain our historic monuments. And ordinary people think they are being asked to carry too much of the burden of the euro on their shoulders. They are really scared - much more than a year ago."

It is hard to believe that such insecurity can be taking hold in this prosperous, picture post-card corner of southern Bavaria, where winter visitors browse in lavish stores, and the only rumblings normally heard are from the trail of giant trucks heading up to the Brenner Pass.

Europe's leaders talk of getting closer to "the citizens", but have so far ignored the citizens' doubts about the euro. In the run-up to the crucial Dublin summit of European Union heads of government next week, the rumblings are building to a roar, and nowhere more so than in the powerful German "free state" of Bavaria.

If Helmut Kohl, the German Chancellor, is forced to slam on the euro brakes, ahead of the federal elections in 1998, it will be partly thanks to pressure from Bavaria. Most people here believe the single currency will come eventually, but hope it will not be for several years.

Public awareness of the impact of a single currency is bound to be most acute in Europe's frontier regions, where cross-border economic ties are an everyday reality. Rome's decision last week to rejoin the exchange rate mechanism, seen as a serious effort to make the grade for European monetary union (Emu), reverberatedacross the Alpine frontiers of Italy, Austria and Germany.

It might seem logical that here close ties would produce most support for the euro. Bavaria is at the heart of Europe, with the lowest unemployment in Germany. In the Munich boardrooms of BMW or Siemens, the company directors who have so successfully globalised Bavaria's trade say that a stable euro must be good for exports. In Bavaria, which carries out nearly 60 per cent of its trade with Italy, the prospect of a more stable lira, tied into a single currency, should have been welcomed.

Bavarian milk in tankers pours through Alpine tunnels every day, and returns as Italian cheese. Ordinary Bavarians should welcome the convenience of the euro. They have always been the first to seek to profit from the cheap lira, travelling to Italy for bargain holidays, and flocking across to Italy's south Tyrol for goods after the last lira devaluation.

But now that the mark seems threatened by Rome's desire to join Emu, this proximity produces little fellow feeling. Intimate knowledge of the lira's ups and downs has only confirmed Bavarian suspicion of the weaker currency, which they believe will enfeeble the euro and sink the mark.

Bavaria may be rich, but it sees no reason why it should get poorer for the sake of Emu. Germany may not have Italy's "Euro tax" - a measure proposed by Romano Prodi, the Italian Prime Minister, to reduce his budget deficit - but new budget cuts imposed by Mr Kohl to bring the German finances into line amount to just such a tax in many eyes.

Bavarian metal workers are threatening an all-out strike in the spring over cuts in sickness and holiday pay, and paranoia about new cuts in Christmas pay and pensions was evident in Rosenheim. Bavarian jobs with companies such as BMW are already going outside Europe to countries in Asia and eastern Europe, where costs are cheaper, the unions say.

"If Europe means that the standards of the workers are all raised to the highest level then it is good," Rudi Neumeier says. "But, instead, we see our standards going down to the levels in Italy, Portugal and Spain."

It is no coincidence that Germany's toughest demands for maintaining strict economic criteria for membership of Emu are issuing from Munich. Theo Waigel, the hard-line German finance minister, who devised the so- called "stability pact", a controversial system of rules and fines for Emu members which will be discussed at Dublin, is a Bavarian.

"We can have no tricks - no creative accounting," Erwin Huber, the Bavarian finance minister, said. Mr Huber says openly that the euro cannot go ahead without the support of the people. "There can be no point of no return."

Edmund Stoiber, the right- wing president of Bavaria, whose CSU party is a partner with Mr Kohl's ruling CDU, has come close to calling for a delay. Unlike most German politicians, Mr Stoiber, of a younger generation than Helmut Kohl, sees nothing taboo in Euro-scepticism. He is at present leading Bavaria's fight with the European Court over a ruling that it illegally gave state aid to Mazhuette, the local steel company. Mr Stoiber sees Europe not as another "United States" but a "federation of regions".

Furthermore, he knows that attacking Brussels can bring in the votes. Just across the border in Austria, Jorg Haider's extreme right Freedom Party recently won 27.6 per cent of the vote in European Parliament elections, playing an anti-Emu card. In Bavaria not only are fears of the euro deepening, but there is also evidence that if national currencies are abolished without time to prepare the public, monetary union could alienate opinion against political union too.

Tomorrow, South Tyrol