French election '97: Socialists may rock the boat over Emu

Across Europe, politicians, officials and businessmen were trying to work out the implications of the Socialist victory for Economic and Monetary Union (Emu).

The Socialists may rock the Euro-boat by demanding a change in the rules for entry to monetary union, insisting on a soft euro, which would allow Italy, Spain and Portugal to gain certain entry in the first wave.

German hopes to see a tough "stability pact", which would ensure tight fiscal austerity among all countries after the Emu launch, may be scuppered by Lionel Jospin, who has already dismissed the pact as "absurd". Furthermore, the new French power-brokers will seek support for the establishment of a powerful economic government, to act as a counterweight to the new European Central Bank, with far wider political influence than Bonn will be able to accept.

"Since yesterday the constellation has been altered so that we might know in the next few weeks, not in 1998, whether the euro will be a stable currency," said Edgar Meister, a member of Germany's Bundesbank council. Similar sentiments were expressed by the conservative Prime Minister of Bavaria, Edmund Stoiber. "I am very concerned about the stability of the euro," said the Euro-sceptic politician.

Chancellor Helmut Kohl made a long telephone call to the French President, Jacques Chirac, in the morning, to commiserate and no doubt to seek an assurance that France would honour her European commitments. Throughout the day, Mr Kohl's party issued a stream of statements reminding Mr Jospin of the benefits of sound fiscal policies.

These exhortation are, however, beginning to ring hollow even to the German audience. Having resorted to dubious accounting tricks, Mr Kohl's government now stands accused of undermining the single currency project, and of fostering a climate of fiscal laxity.

In Brussels, European Union leaders insisted that the French Socialist victory would have no effect on monetary union. The consensus behind Emu remained "rock solid," insisted Yves Thibault de Silguy, the economic commissioner. However, some analysts believe that the Socialist victory must increase the likelihood of a delayed launch.

While France's attitudes to the euro will be most closely watched, the most immediate reverberations of Mr Jospin's victory will be felt in the talks on European integration, due to be completed in just two weeks' time at Amsterdam. The Socialists may seek to re-design Europe's integration plans to fit a more favoured socialist model and there was strong speculation in Brussels yesterday that this could necessitate a delay in signature of the Amsterdam Treaty.

Elisabeth Guigou, a leading French Socialist, and former minister for European affairs warned last week that her party would call for a delay in finalising the treaty if it came to power.

Senior officials were playing this down yesterday. "Europe has always been at the heart of French ambitions. I am confident that France will continue to pursue a determined course of action in favour of European integration," said Jacques Santer, the European Commission President. "In particular, I am confident that France will ensure the success of the inter-governmental conference at Amsterdam, by the agreed timetable, and of the single currency on 1 January 1999."