Two leading figures in the debate on the European single currency clashed over its future yesterday. Hans Tietmeyer, president of the German Bundesbank, said for the first time that it would be better to postpone the start date than have an unstable monetary union. But Yves-Thibault de Silguy, head of financial affairs at the European Commision, said any delay could be fatal.
There was little reaction to the clash in the financial markets yesterday, but analysts said political conflict over the path to monetary union could mean turbulence in the currency markets later this year.
"The markets are sitting back and watching for now, but European strains could build up into a serious crisis," said Stephen King at brokers James Capel. Michael Lewis, an economist at Deutsche Morgan Grenfell, said: "This will bring more uncertainty into the financial markets."
Mr Tietmeyer, speaking at a seminar in Frankfurt, said postponement would be preferable to rushing into an unstable and inflation-prone single currency.
"Once it gets going monetary union cannot be allowed to be sidetracked. If necessary, a delay would be less problematic than a later derailment," he said.
He stressed the need for strict adherence to the criteria set out in the Maastricht Treaty, especially the limit on government budget deficits.
Mr Tietmeyer's remarks appeared to contradict earlier statements by Helmut Kohl, the German Chancellor, that it is essential for the single currency to start on time on 1 January 1999.
France's Prime Minister, Alain Juppe, said on Monday that he and Mr Kohl had reaffirmed this start date.
Mr de Silguy yesterday supported this view. Speaking at the same meeting as the Bundesbank president, he said: "Postponement of the euro would be a sure way of killing it. It would signify that EU governments do not keep their word. How then could one persuade financial markets that future deadlines would be met?"
He said he was optimistic that many countries, including France, would satisfy the economic requirements for joining the single currency on time.
The tensions at the heart of the European political elite over the future of the single currency have been caused by the sharp slowdown in growth on the Continent. The danger of recession has raised serious questions about the ability of most potential members to meet the Maastricht criteria, especially the 3 per cent of GDP ceiling on government deficits. Only Luxembourg meets this criterion. Slower growth meant Germany's deficit last year was 3.6 per cent of GDP and economists predict it will rise.
Kenneth Clarke, Chancellor of the Exchequer, offered his own prediction for the single currency yesterday. "It might happen, it might not," he said.Reuse content