Comment: Germany learns how to fudge
Friday 16 May 1997
Fiscally virtuous Germany has at last accepted the incompatibility between those three aspirations, a difficulty long recognised by its French and Italian neighbours. The trick of revaluing Bundesbank reserves to extract enough money to reduce government debt and interest payments is probably not strictly outside the letter of the Maastricht rules. But it is certainly not in the right spirit.
This did not stop Theo Waigel, finance minister, and Gunter Rexrodt, economics minister, repeating the usual litany yesterday. But the financial markets leapt to the obvious conclusion, and marked down the premium on Italian over German government debt to a record low of 1.48 percentage points. For if Germany has to be creative with the figures in order to turn a slightly greater than 3 per cent of GDP budget deficit into a barely below 3 per cent one, it will not have a leg to stand on, politically speaking, if it tries to keep Italy out of the single currency for doing the same kind of thing.
But for all the German government's late discovery of creative accounting, it would be a mistake to conclude that there is no real difference between its budget position and the Italian government's. It would be daft to exclude from EMU any country whose budget deficit has fallen, is still falling, but just misses the 3 per cent target. It would be just as daft to include a country that has wrenched its deficit into shape for one year using a whole raft of special measures whose effect will not last.
Italy is not yet in the same fiscal league as Germany and France. Their race to the finishing line is being slowed by recession; Italy is tethered to the starting post on a piece of elastic that will snap back after 1997. Unfortunately, the terms of the treaty are not subtle enough to distinguish the different cases.
The result of Germany's embarrassment is that Europe may be forced into a difficult and silly choice between an economically sensible single currency and a politically acceptable one. It can readily be seen that these two aspirations are moving swiftly apart. Germany is going to find it increasingly hard to do what it always intended - exclude Italy and Spain. And if it has to include them, then opposition to the single currency in Germany is going to harden.
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