Outlook: The case for a narrow EMU

outlook on labour's plans for the car, a discount rights issue and qualifying for monetary union
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The Independent Online
So upbeat was the delightfully optimistic Yves-Thibault de Silguy yesterday about the chances of virtually all EU member states of qualifying for monetary union in the first wave, that it seems almost churlish to cast any doubts on the project's economic sustainability. If wishing hard enough could make it come true, the European monetary affairs commission is having a fair old go.

At issue is the question of whether a wide EMU will be stronger and more successful than a narrow one. The politics point to including Italy. The need for economic convergence points to postponing Italian and probably French membership.

Regrettably, it is so unthinkable to suggest that France too should not be allowed in to the first wave of the single currency that nobody does so. But rushing the French economy into it could be disastrous unless the government shows an awareness of the economic reforms it must introduce in order to cope.

Consider how narrow the options are. It is already out of the question for France not to track German interest rate movements, and rates in both countries will have to rise towards the EU average as the start date approaches. There will be no possibility of a devaluation. The government must also carry on reducing its borrowing, so there will be no stimulus to the economy from public spending and taxes.

Yet unemployment is stuck at an unacceptably high level and growth is sluggish. The only option is widespread structural reforms. But France has a government that could not be further from admitting the need for an end to state subsidies, for radical deregulation and for flexibility in the jobs market, and a political and financial elite that will not learn lessons from anybody else's experience.

This is something that affects the British government's calculations, as Gordon Brown's emphasis on the forthcoming series of jobs and economic summits shows. However keen the Chancellor may be to join the single currency, it has to be one that works. Yesterday's predictions from Mr de Silguy were meant to show that a wide EMU can go ahead, yet in truth, the closeness of the call for two of the biggest economies made a much stronger case for a narrow membership.

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