Comment: Fudge on euro contradicted by IMF

The boffins of Brussels have plainly gone through one of those exercises made so easy by modern computer technology in arriving at yesterday's Economic Forecasts for members of the European Union. First, you choose the answer you want to get out of your equations - it was a deficit of three per cent of GDP on the nose in this case. Then you work backwards to find the profile for GDP growth that will deliver this pleasing round number.

Oh, but not in the case of Italy. It suffered the ignominy of being one of the two countries (the other was Greece) the Commission said will not get its government deficit below that mystical three per cent of GDP figure this year. No wonder the Italians were furious at being left out when the Eurocrats handed round the fudge. And no wonder the financial markets just laughed at the Commission figures.

The International Monetary Fund had a better stab at forecasting EU budget deficits. It said nine rather than 15 countries are likely to meet the budget deficit criterion. The six that will probably not make it are the EU's five biggest economies - Germany, France, Italy, the UK and Spain - plus Greece. The numbers were far more credible as economic forecasts go, but they do not mean that the single currency will go ahead without any of these six.

In fact, the two sets of forecasts were delivering the same message. It was that membership of EMU will be a political decision, subject to minimum economic performance constraints. There will be a broad membership, but Italy will be excluded initially.

Italy has achieved an incredible economic and political transformation in its eagerness to join the club, but it has not yet gone far enough to gain entry. Nothing it can do in the space of a year is likely to change that picture or the mind of the other members.

As Flemming Larsen, the IMF's chief forecaster, said when he presented the figures yesterday, the small discrepancies between one set of forecasts and another do not signal an economic problem, but rather a political one.

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