EU visionaries enter the euro zone

Experts have warned the European Commission to expect mass confusion as 290 million people experience a currency revolution
Click to follow
The Independent Online
EFFORTS to end the deadlock over the nationality of the man who will take charge of the future European Central Bank are failing to mask a widening rift between France and Germany on the eve of the launch of Emu.

Yesterday, as workmen at the European Union headquarters hammered flagpoles into place and television satellite vans began to arrive for this weekend's summit it seemed that the French, by refusing to withdraw a challenge to the German-backed Dutch candidate, would plunge a truly historic moment into an unseemly crisis.

The summit will set the seal on the most momentous decision in Europe's post-war history. Eleven national currencies including the French franc, the German mark and the Spanish peseta will be abandoned for a new economic unity invested in one money, the euro.

Tomorrow heads of government will formalise the creation of the euro zone and confirm that 11 countries - all but Britain, Denmark, Sweden, and Greece - are ready to enter it from January. From tomorrow night, when even the bilateral conversion rates to apply from 1 January 1999 will be decided, the economic and political destinies of the participants will be intertwined more closely than ever before.

It falls to Tony Blair, because Britain has the EU presidency, to confront the French and end the feud over the Central Bank. In The Netherlands today Mr Blair and the Dutch Prime Minister, Wim Kok, will try to agree a strategy to allow the French President, Jacques Chirac, to back down and save face.

Whatever the outcome, the row has exposed rifts which some fear could undermine credibility in the new money and tear Emu asunder.

Together Bonn and Paris have taken Europe to the launch pad of this unparalleled experiment. Yet the German and French visions of how it ought to be run remain deeply at odds. Just a year ago doubts about the Emu timetable raged as unemployment in Germany hit record levels. Italy was making frantic efforts to cross the finishing line on time but few believed Rome could stay the pace.

Mondorf-les-Bains, a Luxembourg spa resort and a meeting there of finance ministers last September was the moment when, sensing a palpable change in mood, Emu watchers and the markets began to stop doubting. Economic growth was picking up, governments had turned the corner in efforts to slash deficits to the Maastricht limits, and crucially the Germans had accepted that Emu would be broadly based. The endgame was in sight.

A revolution which will make decimalisation seem like a blip is in store for the 290 million people being asked to take on the new currency. Experts have warned the European Commission to expect mass confusion and the possibility that elderly people will stop spending for a time.

Workers may be shocked to learn their pay demands are subject to the veto of Brussels or Frankfurt, where national tax and spending plans of "common concern" will be vetted. Because of the draconian conditions set by the Bundesbank, a budgetary strait-jacket will be tied around the zone, robbing governments of much of their economic sovereignty.

But then Emu was always a political wolf in economic clothing. Founded on a bargain struck by French and German visionaries it is being served up as a logical extension of the single market, which will cut costs, help Europe to rival America, spur growth, promote investment and create jobs.

Whether Emu delivers on any of these promises cannot be known yet, but the journey will force the participants into closer political links. But failure to settle the European Central Bank dispute tomorrow will invite claims that the project is unsound because its management will always be at the mercy of conflicting political demands.

The ECB disagreement is also symptomatic of a worrying source of future tension over budgetary discipline and the German obsession with ensuring that the euro will be as strong as the old Deutschmark. The wedge between France and Germany on this emerged over the stability pact, a mechanism to punish reckless finances.

Now Bonn wants to go further to soothe the fears of Germans about giving up the mark. The Germans want a commitment to a freeze on tax cuts and public spending until everyone is running a healthy surplus.

The biggest problem with this is the French. Their leaders may sign up to budgetary stability but implementing it in a country where governments have traditionally intervened in the economy to create jobs or cushion shocks will be a different matter.

Perhaps of most concern is the extent to which public support for the Euro is still lukewarm. But public opinion has never stopped the EU visionaries. Their dream is within grasp. Whether the price of that dream is too high for ordinary citizens to pay may not be known for years. By then it will be too late to turn back.