Diplomatic Correspondent and SARAH HELM Brussels
The French and German governments will admit within weeks that the European Monetary Union may have to be postponed, senior British Government figures believe.
The recession in Germany and social unrest in France have made it impossible for EMU to go ahead in 1999 as planned, according to the Maastricht Treaty timetable, senior ministers say.
They believe that "the moment of truth is approaching" - not about the principle of EMU but about the dates. A groundswell of public criticism by European political and financial leaders will force the French and German governments to clarify their intentions in the next few weeks, the ministers say privately.
They conclude that France and Germany will need to announce either a change to the date set for monetary union or a change to the rigid financial criteria for membership of the single currency imposed by the Maastricht Treaty.
But there is agreement that the Government should remain officially silent while doubts are heaped on the project by some of its most fervent supporters, such as the former EU Commission President, Jacques Delors.
The French and German governments announced yesterday that there was no question of re-examining the 1999 terms and timetable for EMU. But the public facade masks confusion and uncertainty, at least in Paris. Two senior French ministers broke ranks with the official line yesterday, although one recanted later under government pressure.
The industry minister, Franck Borotra, said that if he had to choose between Maastricht and jobs, he would choose jobs. The Foreign Minister, Herve de Charette, told a French radio station that it might be useful to interpret the rigid EMU conditions on public spending more flexibly, as proposed on Wednesday by the former President, Valery Giscard d'Estaing. But Mr de Charette back-tracked later.
Despite mounting doubts about EMU across the continent, officials in Brussels said dire predictions in London of imminent collapse could be motivated in part by wish-fulfilment and a political decision to fuel the crisis. A collapse of monetary union now would give an enormous political boost to Mr Major, defusing Euro-sceptic attacks.
One official, close to EMU policy-making, said he was "astonished" to hear that British ministers were taking such an apocalyptic line, which was entirely out of tune with the official Foreign Office assessment. The Chancellor, Kenneth Clarke, also told reporters this week that he still expected EMU to go ahead on schedule.
"The fact that one or two people have raised questions this week should mean that suddenly everyone - the Germans included - are going to lose their cool and allow the thing to collapse in weeks seems extraordinary," said one source.
But senior British sources say all will depend on whether Chancellor Kohl of Germany can be prevailed upon to relax the financial conditions laid down by President Jacques Chirac of France, who faces further domestic political upheaval if he pushes ahead with the rapid public spending cuts needed to qualify the franc for EMU membership. The verdict in London is that Chancellor Kohl will not be able to overcome monetarist resistance by the Bundesbank and doubts among the German public.
Particular attention has been attracted by the statement earlier this week by the Spanish Minister Carlos Westendorp, one of the key players in driving forward formal proposals for closer European integration. Mr Westendorp said it might be necessary to "stop the clock" on EMU - in other words, freeze the timetable - rather than formally admit to a delay.
British ministers discount speculation on the financial markets that Chancellor Kohl and President Chirac could defy the sceptics and stage a lightning move to link their currencies immediately, accompanied by a one-time devaluation of the franc. It is thought that any such move would generate "huge resentment" among countries such as Italy, Spain and the Benelux. The crisis over EMU is certain to be discussed at least in the margins of a meeting of European foreign ministers, scheduled to take place in Brussels next Monday.
Rush to save EMU, page 9