Brussels shares British fear of two-track Europe

SARAH HELM

Brussels

Britain's warning that European monetary union could split Europe, creating a permanent division between countries inside and outside the system, has received new backing from within the European Commission.

Senior officials have admitted for the first time that those countries which do not join the single currency in January 1999 may find it much harder to join later. The Commission's stark assessment will add to the uncertainty over monetary union, giving new force to the argument that the 1999 target date for the launch is premature, and could relegate late- comers to a European Union "second division".

Until now the Commission has largely dismissed the British warnings of a split between "ins and outs" as another ploy to stir up opposition to the single currency. However, according to well-placed sources in Brussels, the Commission's own experts on monetary union now concede that, under the procedures set out in the Maastricht treaty, countries which remain "outside" in 1999 could face even tougher economic convergence criteria after the hard core has been established.

The new Brussels admission stems from a detailed legal assessment of the Maastricht convergence criteria and a study of likely economic performance in weaker EU member states.

The Commission is clear that the criteria for those wishing to join the first wave will apply equally to those joining a second wave. The Maastricht treaty states that a country's ability to meet targets for inflation and long-term interest rates will be based on how far it brings its economy into line with the three "best performing member states".

Commission officials accept that once monetary union has been established inflation and interest rates among EMU member states will be brought down, as stability is established and the currency strengthens. But countries which remain outside will become subject to new inflationary pressures, in particular Portugal, Greece, Spain and Italy. As a result they will find it even harder to reach the targets.

John Major has consistently argued that monetary union cannot proceed unless a detailed study is carried out into the future relationship between countries which join on the target date and those that remain outside. The Prime Minister warned of likely disruption to the single market and spoke of a "voting block" of EMU countries. Mr Major also warned that a division between "ins" and "outs" could have damaging consequences for the operation of the single market.

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