Belgian warning over tough EMU charges: Criteria for government will need reviewing if Europe is still in recession next year, says maystadt

Click to follow
EUROPE may have to change the tough targets it has established as part of the programme for a single currency, Philippe Maystadt, Belgium's finance minister, warned yesterday.

Belgium takes over the presidency of the European Community on 1 July and will play a crucial role in setting the stage for the implementation of economic and monetary union.

Mr Maystadt is voicing a concern, widely shared in Europe, that sticking to the convergence targets for government borrowing set in the Maastricht treaty is incompatible with getting out of recession.

According to reports last night, the EC will this week forecast zero growth for this year. This would make the convergence targets harder to meet.

'If next year we are still in a recession, I am convinced that realism will lead us all together to adapt the figures to take account of the situation,' Mr Maystadt said yesterday on Belgian television. 'These figures were set in a period of strong growth.' On Saturday, he was quoted as saying that the targets might have to be reviewed even earlier.

EC finance ministers meet this weekend in Denmark to review progress towards monetary union. By then, the results of the Danish referendum will be known.

Ministers are likely to give a ringing endorsement of the need to press ahead with monetary union, but may also express doubts over the detail of the path to a single currency set out in the Maastricht treaty.

The treaty specifies criteria for inflation, interest rates, government debt and budget deficits. Though member states do not have to hit these, they must be seen to be converging on them.

The Commission is drawing up legislation that would interpret these, and is having some difficulty with the criteria for government debt, according to evidence given by officials to the European Parliament recently. There is also pressure from member states for a looser interpretation of the rules to allow them to boost their economies at a time of recession.

Belgium, with the highest government debt in Europe - 121 per cent of GDP, compared with a convergence criterion of 60 per cent - is concerned that EMU might retard recovery, and is pushing for a more relaxed stance. It will have support from several other EC states.

This will be resisted by EC central bankers, who argued in their annual report that fiscal consolidation was vital. The Commission will also want to ensure that monetary union is not watered down. But it sees relaxation of the targets as preferable to slowing the timetable for a single currency, a decision on which could be made as soon as 1997.

The UK is exempt from the third stage of monetary union - a single currency - but is included in the second stage and has filed a convergence plan showing that it will meet the targets.

The preparations for economic and monetary union - the second stage of which is due to start next year - have been held back by the problems with ratification in Britain and Denmark. But Belgium is expected to push ahead with work to set up the European Monetary Institute next year. It will also want the legislative work to be complete, a tough task with only six months to go.

The German economics minister, Guenter Rexrodt, meanwhile said yesterday that German interest rates were not exorbitantly high and that the Bundesbank's policy of cautious rate cuts was correct.

'Interest rates in Germany are still too high. But they are not exorbitantly high. I do not know any investment project which has collapsed from having to pay loan rates which are too high,' he told German radio.

Purely in terms of stimulating the economy, it would be consistent to recommend cutting rates faster, and he wished there were more room for easing. But understood the Bundesbank's policy of moderate cuts.

'We still have an inflation rate of 4 per cent and above. That is too much. It was right for the Bundesbank to cut rates keeping sight of its internal problems but also its responsibility for Germany.'

Some Bundesbank officials are said to believe the 7.25 per cent discount rate could fall to 6 per cent by autumn.

Gerald Holtham, page 23