A permissive approach to monetary union

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The Independent Online
The scenario mapped out by the European Monetary Institute, forerunner of a possible European central bank, for the transition to a single currency will do nothing to dispel the gathering storm-clouds over the project.

Scarcely a day has passed in recent months without the Germans stiffening the conditions they attach to a go-ahead for European Monetary Union. The Finance Minister, Theo Waigel, called last week for swingeing fines - which could run into billions of pounds - on countries participating in EMU that subsequently exceed the budget deficit ceiling of 3 per cent of GDP set out in the Maastricht Treaty. The Germans are now saying, in effect, that the real objective for the deficit ratio is something close to balance when economies are growing normally.

As the reshuffled French government busts a gut to bring its bloated deficit, currently above 5 per cent, to the 3 per cent level set out in the Maastricht Treaty, it must seem as if the target is one that is ever receding.

But it is not only the French who are in difficulties; Germany itself is set to score an own goal. Last year Germany, along with Luxembourg, was one of only two countries that met all the Maastricht convergence criteria. However, if the Five Wise Men, the German government's council of economic advisers, are right, Germany will breach the budget deficit ratio this year and will teeter on the edge in 1996. A monetary union consisting of just Luxembourg hardly seems worth all the blood and tears being shed on achieving this grand project.

In this context, the EMI report hardly seems likely to reignite the process. It is notably more cautious than the proselytising Green Paper issued by the European Commission last May. The EC sought to move to full union by promoting a critical mass of activities in the new currency within the banking sector. The EMI, by contrast, contents itself with the statement that the private sector should be free, but not obliged, to use the European currency in the critical phase between the locking of exchange rates at the beginning of 1999 and the introduction of notes and coins in 2002.

This permissive approach almost certainly makes better sense than the idea that the banking sector can be dragooned into becoming EMU's storm troops. But it will do nothing to assuage the doubts that the critical- mass approach aimed to dispel. The ball is now at the feet of European leaders. What markets are looking for is a clear statement of political intent at the Madrid summit. Without this, doubts about the credibility of EMU will continue. Nothing worthwhile was ever simple. While the difficulties of creating a single currency seem more intractable than ever, the game is by no means yet played out.

Britain - the back door to Europe

Is this what John Major means when he talks about Britain becoming the enterprise centre of Europe - pounds 80m of state aid to attract the ultimate Tiger economy screwdriver plant into the Scottish glens? Time was when Taiwan was ridiculed for its economic status. Need a low-cost, unskilled labour force, prepared to do almost anything? Go to Taiwan, home of everything throwaway and plastic.

Now the Taiwanese are bringing their know-how to Britain and not very impressive it is too. Scotland perhaps needs every job it can get, but this surely cannot be the future either north of the border or in Britain more generally.

Chungwha is the name of the company and it plans to manufacture the bog- standard cathode ray tube, the centrepiece of a TV set. The product still sounds impressive enough but in truth this is technology that has not changed fundamentally for years. Indeed, this type of TV technology is now regarded in Japan as so backward that the country has largely given up manufacturing TV sets, preferring to leave it to low labour-cost economies like Taiwan. And now apparently Britain, chosen for the usual reasons - relatively cheap, compliant labour force, English-speaking and, most important of all, a back-door way into Europe's largely ring-fenced but wonderfully affuent consumer economies.

All this may sound unduly churlish, for 3,000 jobs is 3,000 jobs and you can be sure that Britain wasn't the only EU member keen to get its hands on the project. None the less, Britain will not properly be able to command the title of enterprise centre for Europe until we see companies, both British and foreign, locating their cutting-edge technology here; and locating here not because of its stepping-stone-to-the-Continent characteristics but because Britain is genuinely seen as the most thriving business economy in Europe. We are still a long way from that.

If John Major's words are going to amount to anything other than hot air, the Budget is going to have to deliver a credible package of "enterprise" measures to back the vision. Fiscal policy alone won't do the trick, however. Unfortunately for Mr Major, there are no quick fixes, no short cuts in the creation of an enterprise culture. Certainly not the cut-and-run, tax-cutting Budget being planned

Private finance in the grass

The big problem with the private finance initiative, as Sir Alastair Morton, former chairman of the Private Finance Panel, said last night, is that a good idea can be talked into the grass. Sir Alastair dished out the blame for this undermining of what he thinks is the brightest financing innovation of the Nineties in pretty equal measure. The City escapes comparatively lightly, with the real culprits branded as Whitehall and industry.

The civil service is chided with inactivity, failing to deliver on projects languishing in the Whitehall pipeline. The problem with industry is no less significant. Britain has failed to develop the Continental-style conglomerate able to construct and operate large-scale public service contracts.

Sir Alastair's critique is the more telling because it is delivered by one who has witnessed the process from the inside. When the Chancellor stands up to pledge an expansion of the PFI in the Budget, he will also have to give with some convincing answers.

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