On Wednesday, the Bundesbank fiercely criticised plans by the Helmut Kohl's government to revalue gold reserves, suggesting the move was an attempt to fudge budget deficit figures in order to meet the criteria for the single currency. The bank was forced to deny rumours that its president, Hans Tietmayer, was going to resign over his opposition to the government plans. "There will be no cooking of the books - no fudging of the figures," insisted Yves Thibault de Silguy, the economics commissioner, yesterday, saying also that the German row would not delay the launch on 1 January 1999.
The Commission has yet to make a ruling on whether the German plan to revalue gold reserves would contravene Maastricht rules. To date, Bonn has not officially informed the Commission of its plans, said officials yesterday, refusing to be drawn on whether the move might prove contrary to the treaty.
As the row continued to escalate there were signs that Theo Waigel, the German finance minister may be already be attempting to backtrack. At a news conference yesterday, he said "not a single mark" of the expected proceeds of the gold revaluation would go to reduce the budget deficit.
Mr Waigel also insisted that Germany could meet the convergence criteria regardless of the revaluation.
However, the fierce Bundesbank attack on Wednesday, has already undermined faith in Germany's ability to achieve the Maastricht rules, thereby inevitably fuelling new speculation of a delay. The attack brought hitherto muted German anxieties about the single currency to the fore, fuelling fears that the Euro may not be as strong as the mark. Financial experts in Germany denounced the grab for gold, saying it had damaged confidence in the country's ability to manage its economy.
German financial markets were buffeted by the row. The Deutschmark rose and fell, while the price of German Government bonds declined. Other Continental European gov- ernment bond markets were also weaker. The main beneficiary, with the UK and US, was Switzerland. David Marsh, an analyst at the investment bank Robert Fleming in London predicted a spell of turbulence in the financial markets, saying: "Emu now looks dead in the water."
German anxieties about a "soft Euro" have in the past centred on concern that Italy may be admitted to the first wave of EMU member states. But now the German government's own determination to maintain control of public finances has been called into question.
The Italian leadership, through saying little in public yesterday, were reported to be rubbing their hands in glee, knowing that in future it will be harder for Bonn to criticise Italian accounting manoeuvres or to reject Italy's application for membership in the first wave.
The likelihood of the single currency producing a "soft Euro" has also been increased by the prospect of a socialist victory in France. A left- leaning French government would almost certainly remain committed to the principle of Emu, but would call for more flexible interpretation of the Maastricht criteria in order to avoid further rigid budget-cutting.
Preparation for Emu has repeatedly been thrown off course in the past two years, but the massive political will to bring a single currency into being has ensured that previous jitters have subsided. This latest row, however, could prove more difficult to defuse. If Europe's leaders are forced to consider a delay, they would have to signal their intention by summer, in order to present an orderly retreat.