Kohl battles to curb mounting panic about loss of the mark

Monetary union: Campaign to woo public may be too late

SARAH HELM

On the noticeboard of the Finance Ministry in Bonn the posters display a confident message: "The single currency: as strong as the mark." Inside, however, confidence that the single currency will indeed be as strong as the mark is ebbing away.

The German political elite is bracing itself for the real possibility that the 1999 launch date may have to be delayed. Fears that France will not be ready continue to mount. Even if the target can be met, Germany is beginning to ask: "What about the day after?" Will the single currency sink under a flood of inflationary pressures?

Meanwhile, the insecurity of the German people about the loss of the German mark shows little sign of abating. Germany is to launch a big publicity campaign in the new year to convince the public, but many fear it may be too little, too late.

Chancellor Helmut Kohl refuses to concede publicly that the 1999 start date can be postponed, for fear of reducing the momentum among other states. Delay would be a devastating blow to his faith in the absolute need for greater European integration. While the German people fear the loss of the mark, symbol of their post-war success, the Chancellor feels it must be subsumed in a single currency to prevent history repeating itself. He believes an ever-stronger mark would intimidate neighbouring states, causing them to unite against his country.

Although some in Germany claim that a delay would not be disastrous, and that economic monetary union (EMU) would be back on the table in a few years, most European leaders know that postponing the single currency would raise fundamental questions about the whole future of the union. The case for greater political integration would be undermined, and the prospect of enlarging Europe to include new member states would recede.

The gap between Germany's public rhetoric about meeting the 1999 target and the private assessments of German officials is startling. In a series of discussions with the Independent, senior German officials and analysts spoke frankly of their doubts. One senior official in Bonn put the chances of launching EMU in 1999 at "fifty-fifty". Another said a delay of two or three years should be considered. A third said there was "still a chance" the target could be achieved, but it was slim. Some believe Mr Kohl may be forced to ask for a postponement as early as the second half of next year, when France's progress on meeting the economic tests can be gauged.

Jacques Chirac, the French President, has shown he is ready to take tough measures to bring down the budget deficit to meet the ceiling of 3 per cent of gross domestic product set for those wishing to join EMU. But as they watched last week's French strikes in protest against Mr Chirac's cuts, officials in Bonn had little faith Paris will succeed. "There is no leeway", one said. "It all depends on France. If France meets the test we will start. If it does not, it will not be worthwhile."

The German government hopes to reassure the public through proposals from Theo Waigel, the Finance Minister, for a "stability pact" to bind EMU member states to strict economic rules. But Bonn knows it cannot insure itself against political decisions taken by individual members in the future, or against the inflationary effect sudden borrowing in some countries could cause.

"We want precautions to prevent this. But of course there is no absolute guarantee that the single currency will be as strong as the mark," a senior finance official said.

Mr Kohl had hoped that Europe would move towards a federal-style political union in parallel with monetary union, giving Germans more guarantees of European co-operation and stability. But progress on political union is logjammed. The German public, meanwhile, is calling for every guarantee that it can get.

Discussion about the single currency has suddenly burst onto the streets, revealing deep fears and confusion. People are asking what will happen to their savings and their pensions.

"They are very confused. They don't even have a name for the currency," Martin Suskind, of the newspaper, Suddeutsche Zeitung, said.

Some analysts believe Mr Kohl may have resisted launching a public debate sooner, precisely because he feared it might reveal a groundswell of Euro- scepticism in Germany. He is widely expected to stand again in Germany's elections in 1998, when he would like to campaign as the unifier of Europe. But if the voters are still against the single currency when the campaign starts, he may have to heed their fears.

"Kohl's nightmare is that circumstances develop where he has no power to convince his own people of the necessity of the single currency or the union," Mr Suskind said. "Then the experiment would be on the edge of failing."