May deadline boosts EMU prospects

Last weekend's decision by European finance ministers to fix bilateral exchange rates for EMU next May, eight months ahead of the 1999 deadline, has given a further boost to the project. But many on our panel believe the optimism is based more on sentiment than reality.

Julian Jessop of Nikko Europe says the result of last weekend's "Ecofin" meeting was widely expected. However, "psychologically, it has helped EMU sentiment, if only because it is great when Europeans can agree on anything. Not only are they making monetary union happen, but they are making it happen earlier".

With next week's French budget likely to be accompanied by a forecast that the 1998 budget deficit will fall within the Maastricht target of 3 per cent, Mr Jessop says it is difficult at the moment to see what could alter the current positive feelings about the project.

Phillip Chitty of ABN Amro largely supports that analysis, saying the outcome of the meeting should help sway the doubters.

Thereafter, however, the two economists differ. Mr Chitty is encouraged by the prospects for the German economy and the political determination of the French. "We more and more believe [EMU] will be on time on a broad basis,"he said. By contrast, Mr Jessop points out that the Germans could still derail the project, with next spring's Bundestag vote to approve EMU "the biggest single hurdle that monetary union has to clear".

Agreeing that there has been something of an overreaction to the Ecofin meeting, Darren Williams of UBS also highlights the potential for trouble between May, when rates are fixed between currencies, and December, when the rate at which they finally enter EMU must be decided.