Chirac stands against Jospin over Emu pact

The battle of wills over the European single currency plunged the divided French government into its first full-blown crisis yesterday.

President Chirac broke with political and constitutional pre- cedent and publicly opposed the Jospin administration's decision to block the signing of a pact imposing budgetary discipline within the European single currency.

In the two previous co-habitations in the last 11 years between French presidents and prime ministers of different parties, such public spats were avoided. The President's comments will be all the more controversial for intervening in a dispute between France and its EU partners.

Mr Chirac's intervention, made after an attempt at mediation by the Dutch Prime Minister, Wim Kok, seems unlikely to cool the atmosphere. It may make it even more difficult for the Prime Minister, Lionel Jospin, to back down when both he and Mr Chirac meet the German Chancellor, Helmut Kohl on Friday.

On Monday, the new left-wing French government, startled its EU partners - and deep- ly angered the Germans - by asking for a postponement of the signing, due next week, of a so-called stability pact imposing tight fiscal discipline on countries joining the single currency. The Finance Minister, Dom- inique Strauss-Kahn, said he was not rejecting the pact. But he could not sign it without further discussion on ways of giving a bigger role to governments in the wider political and econom- ic management of Economic and Monetary Union (Emu).

Diplomatic efforts were under way yesterday to find a compromise. The EU Commission President, Jacques Santer, will visit Paris tomorrow to offer Mr Jospin a stop-gap resolution, or statement at the Amsterdam summit next week. This would promise future negotiations on the broader, political management of Emu in return for an immediate signing of the Stability Pact.

First signs were not good. The Minister for European affairs, Pierre Moscovici, said yesterday that Paris wanted a "real delay", and a proper negotiation before it signed the pact. "Two paragraphs in a resolution will not do," he said.

It is evident that the new government in Paris is desperate to avoid allowing the dispute to damage or destroy plans to launch Emu by 1999. Bonn also seems anxious to avoid a confrontation. But domestic political pressures are threatening to cause the most serious public row for 15 years between the two nations at the core of the EU.

The long-scheduled Franco-German summit in Poitiers on Friday may now turn into a significant battle of wills on the future direction of Emu - and the EU. Such Franco-German gatherings have a habit of producing unexpected agreements from thin air. But with President Chirac now aligned on the German side, the meeting could be unpredictable and explosive.

The present dispute seems to be partly an accident, caused by the naivety of the new French administration and the extreme sensitivities in Bonn following the Kohl government's humiliating defeat by the Bundesbank last week in its attempt to revalue German gold reserves.

Mr Jospin has apparently been taken aback by the severity of the German response to what he regarded as a simple cosmetic and administrative delay. French socialists see their request for "an economic and political pole" in Emu policy-making as the minimum they need to fulfil their vague campaign promises to steer Emu towards growth and job-creation. Mr Strauss-Kahn, the finance minister, stressed he was not seeking to abandon, or even re-negotiate, the stability pact, even though it was once described by Mr Jospin as an "absurd" concession to Bonn.

The German government suspects the French may take the pact hostage. They fear Paris will refuse to sign it until it wins concessions on EU job-creation programmes, such as the large transport schemes twice blocked by Bonn and London.