Germany's latest attempt to lay down the law over how the single currency will operate, including a plan for heavy fines on countries which fail to obey the rules, is likely to meet a cool response when it is discussed for the first time by finance ministers today.
Bonn's idea for a "stability pact" between states is intended to protect the single currency from inflationary pressure after the launch, planned for January 1999. Most countries accept the idea of such a pact but some of them fear the rules being proposed may be too strict for them to keep. Were Britain to join the single currency and then fail Germany's stability-pact rules, for example, it could be fined about pounds 1.5bn.
The issue is likely to dominate today's meeting in Brussels, which is supposed to take crucial decisions on single currency planning ahead of the Madrid summit next month. A dispute could raise new questions about whether the 1999 start date could be met.
The key element of the stability pact is a proposal to levy fines on countries which allow their budget deficits to exceed 3 per cent of gross domestic product. For every percentage point over the limit, a member would be fined 0.25 per cent of its GDP. The fine would be returned if the deficit fell to 3 per cent or below within two years. If the country failed to meet the target again, it would lose the money, which would be go to the EU budget.
Member states are trying to maintain solidarity over the single currency in the run up to the Madrid summit, but France and Ireland have already signalled doubts about some elements of the pact and Italy has been unenthusiastic. Germany is being privately criticised for pushing rules beyond those envisaged in the Maastricht treaty.
The European Commission has welcomed the principle of the pact, but has been pointedly silent about the proposed level of the fines, saying only that the penalties should be "appropriate", as envisaged under Maastricht. Some observers have speculated that Germany is deliberately pressing for unacceptably tough conditions to delay monetary union, or torpedo it altogether.
It is more likely that Helmut Kohl, the German Chancellor, has calculated he must impose stringent rules on his partners to convince the German public that the single currency will be as strong as the mark. German public opinion has become increasingly nervous about the dangers of an unpredictable monetary union.
Several important questions have to be settled by finance ministers before the Madrid summit, including agreement on the timetable for the run-up to the 1999 launch, when exchange rates will be locked, and the schedule for introducing notes and coins three years later.
The issue they will not wish to talk about today is what to call the currency. Governments are committed to deciding a name in Madrid. In September, it seemed that it had been settled in favour of the "Euro", Germany having refused to accept the original idea of Ecu. However, an opinion poll last week showed German voters preferred the Ecu after all.Reuse content