Julian Jessop of Nikko Europe, believes deficit difficulties could lead to an "all or nothing" EMU scenario. He said: "If EMU does go ahead, it is going to require a flexible interpretation of rules, leading to a broad EMU. But [the deficit] also increases the possibility that EMU won't happen at all."
On Tuesday, a finance commission reported that German tax revenues would be DM17.3bn (pounds 5.9bn) lower than expected. This has prompted worries that the budget deficit could exceed 3 per cent of GDP, the Maastricht ``ceiling''.
"We're forecasting the budget deficit will be 3.2 per cent of GDP," said Heather Richardson of UBS.
Other experts believe that the budget deficit will fall below the 3 per cent level, but that the damage to its credibility has already been done. "Schemes like interest swaps, whilst being within the letter of the law, are certainly against the spirit of the Maastricht Treaty,'' remarked Mr Jessop.