OECD deficit forecasts jolt EMU launch hopes

The prospect of launching the single currency in 1999 received another jolt yesterday when fresh economic forcasts predicted that both France and Germany would fail to meet the budget deficit targets in time.

French and German budget deficits will be above 3 per cent of gross domestic product in 1997, the year on which a country's economic performance will be judged, according to forecasts from the Organisation for Economic Co- operation and Development.

Should France and Germany, the countries leading the drive towards the single currency, fail to meet the criteria, the 1999 launch date would have to be set back.

The decision on which countries qualify to join European Monetary Union is to be taken in early 1998, on the basis of the 1997 results, and both Germany and France have so far resisted any moves to weaken the criteria.

The OECD forecasts, to be published shortly, were confirmed yesterday by Jean-Claude Paye, the secretary general. Although Mr Paye refused to give precise figures, he said: "The forecasts which have been made give something above 3 per cent for 1997."

The European Commission, which is due to publish its own economic forcasts on 15 May, showed no sign of concern over the OECD results, insisting that there was no reason to believe that the deadline for launching the single currency could not be met by Germany and France, as well as several other EU states. "We remain confident that there will be a significant number of countries ready to participate in monetary union in 1999," a Commission spokesman said.

However, the Commission's own forecasts are being awaited with some nervousness in Paris and Bonn. Germany already faces the prospect of Commission sanctions after overshooting the deficit limit for 1995.

Both France and Germany are certain to insist that the gloomy predictions can be overturned by new drives to cut public spending. French officials are talking of "draconian" measures to curb spending and list plans to limit spending increases to the rise in inflation over the next four or five years.

Recent German spending cuts have aimed at public savings of about 50bn marks (pounds 22bn) in 1997 and include deep welfare and tax cuts.

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