Creation Of The Euro: First eleven pass the single-currency test
Saturday 28 February 1998
Single-currency champions were able to brush aside uncertainty, and declare the way was clear for the inauguration of an 11-country euro-zone next January. Months of belt-tightening and creative accounting appear to have paid off as the EMU endgame moves into focus.
The three big players, France, Germany and debt-strapped Italy, said they and eight other hopefuls had scraped through the key entry criterion set by the Maastricht Treaty, which is to have a public deficit no greater than 3 per cent of GDP.
Only Greece - by its own admission - failed to get its public finances in shape, leaving it on the sidelines with Britain, Sweden and Denmark, which have all ruled themselves out of the first wave.
Britain is one of only four countries comfortably to meet the Maastricht conditions on borrowing and debt in the strictest sense.
Assessment of the economic results for 1997, the year on which countries are being judged, rests with European Commission statisticians. They will vet national submissions in time for a final selection by EU leaders on 2 May.
But, despite suspicions about statistical fudging, few expect Brussels to quibble with the reports handed in yesterday. These show that 11 states have brought borrowing down to the point where it is at or below the 3 per cent of GDP limit.
Public-deficit figures in Germany and Italy were better than expected at 2.7 per cent. France had the narrowest escape, weighing in at the 3.0 per cent of GDP limit.
Indebtedness remains a cause for concern, with only four of the 11 meeting the target. Italy and Belgium have debt levels twice as high as the Maastricht limit of 60 per cent of GDP.
But the treaty architects included scope to admit entry to the euro-zone if a country's debt is falling satisfactorily.
Germany registered a debt just above the target but Bonn pleads special circumstances arising out of unification.
Ultimately the decision on who joins is a political one and most political leaders now seem satisfied to go with the launch of a widely based euro rather than one founded on a core of the strongest economies.
Doubts about the sustainability of the economic discipline which has been achieved, particularly in Italy, will fuel speculation that sterling could rise even higher in value if investors view the euro as weak.
Britain is in theory keeping its options open but as the launch nears, pressure on the Government from big business will intensify.
A big obstacle for the UK is the requirement to join a re-vamped Exchange- Rate Mechanism, or to at least make sure sterling shadows the euro, for a period of two years before it can join.
In the capitals there was quiet satisfaction rather than a rush to pop champagne corks, reflecting the scale of the struggle ahead.
Welfare cuts and social unrest have accompanied the drive to shrink public borrowing in France and Germany, and more can be expected, with unemployment at record levels and rising. How They Met Their Targets: Compliance with the Maastricht criteria in 1997 Deficit not to exceed 3% of GDP Germany -2.7%; France -3.0%; Italy -2.7%; Belgium -2.1%; Spain -2.6% Portugal -2.45%; Netherlands -1.5%; Ireland +0.9%; Luxembourg +1.7; Austria -2.5%; Finland -0.9%
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