Italy is offered words of comfort

To look at Jacques Chirac and Romano Prodi at their bilateral summit meeting in Naples yesterday, one could not have guessed at the slightest hint of disagreement between them. France and Italy, they said, both hoped to join the single European currency on its launch date in January 1999. Both countries, they said, would do their utmost to bring the lira back into the European monetary system at soon as possible.

Mr Prodi, the Italian Prime Minister, said they were in "perfect agreement", while President Chirac shrugged off a row sparked earlier this week by his hostile remarks about Italy as "a ridiculous misunderstanding".

For a country that only three days ago was being dismissed as a second- class citizen of the new Europe and a no-hoper on monetary union, Italy has finished the week in surprisingly upbeat mood. With his government preparing to slash a record 62.5 trillion lire off next year's budget in an all-out effort to bring the country's public finances into line with the Maastricht convergence criteria, Mr Prodi has now received the support not only of the French President but also of Michel Camdessus, head of the International Monetary Fund.

"Italy is making a major effort to push through a budget which, if carried out in full, will make it possible to bring the budget deficit down to 3 per cent of GDP [gross domestic product] by the end of 1997 as stipulated by Maastricht," Mr Camdessus said.

Such words of comfort came as a relief to Mr Prodi at the start of a month-long debate on the budget in the Italian parliament. An international thumbs-down would have destroyed not only the credibility of the austerity package, but also the stability of his government.

But who is right, the Chirac of last Tuesday who said Italy would never make the single currency on time, or the Chirac of yesterday who praised Mr Prodi's "vigorous and courageous efforts" to rein in Italy's public finances?

"The prevailing attitude is to count nobody out and count nobody in, but to wait and see what happens," one European Union diplomat said. "Nobody wants to praise or rubbish this budget until they see what effect it has."

That would suggest that Mr Chirac's attack on Italy was a gaffe, pure and simple. On closer inspection, his hostility looks more visceral than the result of careful economic analysis, the fear that a competitively valued lira would take away precious French export markets.

There are perhaps two main lessons to be drawn from the week. The first is that the Italians can take nothing for granted, even if they are members of the G7. The second is that Europe is far from a unified entity, and the road to monetary union is likely to be fraught with the conflicting interests of member states. Italy will not just need a healthy economy to swap the lira for the euro, it will need to keep a keen eye out for its backstabbing neighbours.