EU view of French economy 'too rosy'
Single currency: Commission accused of massaging figures
Thursday 23 November 1995
The European Commission came under attack yesterday for issuing rosy economic forecasts that some economists said were intended to boost the idea that France could qualify for a single European currency.
The forecasts were published on the same day as a more cautious assessment by the European Monetary Institute, forerunner of the European Central Bank. The differences exemplify the emerging clash between France, heavily represented in the Commission, and Germany, influential in the Frankfurt- based EMI, over the prospects for a single currency.
In its half-yearly forecast, the Commission predicted that eight countries, including France, would bring their budget deficits below the limit set out in the Maastricht treaty by 1997, in time to qualify for monetary union two years later. "At the end of 1997, a significant number of countries will meet the conditions" for joining the currency union, said Yves-Thibault de Silguy, the French EU Finance Commissioner yesterday in Brussels.
But the monetary institute, in its first ''convergence assessment'', was much more downbeat.
The report said progress towards economic convergence was insufficient. ''Public finances in most member states continue to be far from satisfactory,'' it said.
Economists in the City criticised the Commission as too optimistic. Stephen King, head of European economics at the brokers James Capel, said: ''It is designed to deliver countries into satisfying the Maastricht criteria rather than reflect economic reality.''
No country earned a glowing report from the EMI. But the institute's call for France to make more progress in cutting its budget deficit even after the social security reforms announced this month is politically sensitive. The EMI's convergence report said all member countries would have to take action to meet the deficit and debt criteria limits.
In another sign of rising tensions over the single currency, Germany pushed ahead with plans to ensure budget discipline is maintained after monetary union. Theo Waigel, the Finance Minister, said yesterday that European countries would work out by next year a ''stability pact'' to penalise countries whose deficits exceed the Maastricht target after the start of the single currency. He said French and Dutch ministers agreed.
But Mr de Silguy yesterday dismissed the idea of extra requirements. "There will be no supplementary conditions", he told a European Parliament committee. No national capital could dominate EMU discussions, he said, in a clear reference to Germany.
Only Germany, Ireland and Luxembourg already meet the Maastricht requirement of a government deficit of less than 3 per cent of GDP. Germany's deficit, at 2.9 per cent, was sending a warning signal, according to the EMI, while Ireland's outstanding government debt was too high. Ten countries satisfy the inflation and interest rate requirements.
The European Commission's outlook for the next two years had a much more optimistic flavour. Although it has cut its forecasts for economic growth, the Commission predicts almost as strong an expansion next year.
It foresees GDP growth of 2.7 per cent in the EU this year, 2.6 per cent in 1996 and 2.9 per cent in 1997. This strong growth of GDP allows it to predict that six countries will meet the Maastricht deficit requirement next year, up from three, with eight qualifying in 1997. The forecasts incorporate the recent French budget plans, but not the tax reforms due to be announced in the next two weeks.
Mr de Silguy said yesterday there must be no doubts about governments' resolve to cut deficits. Any uncertainty could generate a ''self-reinforcing spiral of weak sentiment".
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