They're in - but can they stay the course?
The official reports from the European Commission and European Monetary Institute, intended to pass judgement on which countries met the criteria set out in the Maastricht Treaty, turned out to be formalities. After heroic struggles, the would-be members hit most of the targets and little fudge was needed to sweeten the verdict.
In fact, only Italy and Belgium missed one criterion by a long way. Both have national debts relative to their GDP that are about double the Maastricht ceiling. It could take decades for both countries to reduce their debt burdens to acceptable levels, but politically neither could have been excluded from Emu until 2030 or beyond.
Yet the fact that the first-wave members managed to clamber over the Maastricht hurdles has only concentrated attention on the long-term economic prospects - or dangers. One question is how long the participants can keep up the tough budget discipline imposed on them by the treaty. With high unemployment, a rapidly rising pensions burden and an array of spending cuts and tax increases introduced to meet the Emu deadline likely to be reversed, it is hard to believe the political will to keep government deficits below 3 per cent of GDP will prove strong.
The big members will find it hardest. For smaller countries like Spain and Ireland whose economies are booming, and will boom even more when they reduce their borrowing costs to German levels, there will be little pain in fiscal discipline. For the wheezing German and French economies, more leanness and discipline is going to hurt. The Germans insist it is what they want anyway, and would favour a tougher stability pact - the post-launch budget corset, involving fines for profligate governments. The French do not, and the financial markets are poised for both political tension between the two Euro-behemoths and a surge in government spending.
An even more important long-term question mark hangs over how well the member economies will adjust to marching in lock-step with each other. The answer depends on whether they can replace the ability to adjust exchange rates and interest rates with other forms of flexibility. Many economists have their doubts about this, flexibility being a dirty word across much of the Continent. Productivity gains by European industries are one of the economic prizes offered by the single currency, but only the fittest member countries will win.
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