The battle for Europe's future

The crisis in France embodies a wider hostility that political leaders failed to foresee at Maastricht

When France sneezes, Europe catches a cold. It was true in 1789, 1848 and 1968, and now it may be true for the last years of this century. As each day passes, the social convulsions gripping France acquire the potential to shatter every assumption made by Europe's leaders about our political and economic future.

The plan, as devised in Maastricht in December 1991, was that Germany, France and as many other European Union countries as possible would launch a single currency by January 1999 at the latest. The EU would simultaneously take a substantial step towards political union. These measures, the most ambitious since the six members of the original European Economic Community signed the Treaty of Rome in 1957, were intended to set the seal on the single market and dispel for ever the possibility that Europe might lapse into its historical pattern of malignant national rivalries.

What the creators of Maastricht failed to foresee was the degree to which their proposals would inspire public scepticism or even hostility. The British example is well known, and Denmark's initial rejection of the treaty in a 1992 referendum provided a taste of things to come, but the real shock has been the turn that events have taken in France and Germany, the EU's pivotal states.

France's striking public sector workers and protesting students are not motivated directly by a desire to ditch Maastricht, but if they force President Jacques Chirac and his conservative government into concessions they will almost certainly cause a delay, possibly fatal, to monetary union. The strikers are determined to block the government's efforts to restructure the welfare system and bring the state budget deficit down to 3 per cent of gross domestic product by 1997, thus enabling France to qualify for monetary union under Maastricht's terms.

One cannot yet rule out the possibility that Mr Chirac and his Prime Minister, Alain Juppe, will successfully end the strikes, implement the austerity programme and proceed with the single currency on schedule. Certainly, when Mr Chirac meets Chancellor Helmut Kohl in the German spa town of Baden-Baden tomorrow, it will be extraordinary if either leader hints there is a problem with the Maastricht scenario. Immense political will lies behind the single currency project, and neither Mr Chirac nor Mr Kohl will abandon it without a titanic fight.

Yet the odds appear to be increasingly stacked against the French government. Its deficit-cutting strategy depends on achieving a degree of economic growth this year and in 1996 that few independent economists think is within reach. Growth is bound to be hit by the combined impact of the austerity programme and the strikes.

Should the government make major concessions on public spending, the markets will punish the franc in the belief that France will fail to meet the Maastricht targets. With France knocked out as a contender for monetary union, the EU would drop 1999 as the launch date, since everyone accepts that the project makes no sense without French participation.

However, the EU would probably try to set a later date for monetary union rather than abandon it altogether. Whether the markets would find that credible is another matter.

With a mighty effort, France could meet the Maastricht conditions. If it does, however, the cost will be high in terms of unemployment, job insecurity, higher taxes, reduced welfare benefits and a society divided from its government. By committing himself to cutting the budget deficit in conformity with Maastricht's timetable, Mr Chirac has already been forced to drop the most prominent of his many election promises last spring; the pledge to wage war on unemployment.

At 11.5 per cent of the workforce, or almost 3 million people, unemployment is seen by many French as their country's most serious social ill. Advocates of the single currency say it will cure unemployment by providing exceptionally stable conditions for economic growth, including low interest rates and low inflation. But even if this happy forecast is accurate, it cannot come true until some time after 1999, and it is unclear that French public opinion will wait patiently for the promised land while being subjected to rigorous austerity measures.

In Germany, too, public opinion is a problem. Surveys repeatedly indicate that Germans will refuse to give up the Deutschmark, their most precious symbol of post-war success, unless the single currency is as rock-solid in value. The ecu, the EU's notional currency since 1981, has been anything but rock-solid, declining steadily against the mark over the years.

The German fear of substituting a weak Euro-currency for the mark is so intense that Mr Kohl's centre-right government and the Social Democratic opposition have recently been outbidding each other in an effort to secure even tougher conditions for monetary union than are stipulated in Maastricht. Theo Waigel, Germany's Finance Minister, has proposed a system of fines on countries that practise lax budgetary discipline after joining the single currency.

The Maastricht treaty is, indeed, flawed in that the rules for ensuring responsible economic policies after the start of monetary union are somewhat vague. But Mr Waigel's main point is that Germany will not go ahead with the single currency unless all other participants are up to scratch - in fact, more than up to scratch - on low budget deficits, low public debts, a stable exchange rate and all the other Maastricht criteria. This has two far-reaching implications.

First, it means there is practically no chance that Italy and Spain could form part of monetary union in 1999. Bitter recriminations, even a blocking policy, can be expected from the governments in Rome and Madrid, fearful of being locked into an EU second division for southerners. There is also a question mark over Belgium's ability to meet the Maastricht conditions, but no one has yet dared address the difficulty of having a single currency that excludes the country which hosts the European Commission and whose capital is synonymous with the EU.

The second implication is that France itself will be pushed into ever more deflationary policies in an effort to fulfil Germany's strict new demands. In such circumstances social tensions can only grow, and the pressure on Mr Chirac to reverse course will intensify accordingly.

However, we are not quite there yet. Those who are betting against monetary union starting as planned in 1999 could still lose their money. It will be a battle fought to the last, with nothing less than the destiny of Europe at stake.