Germany's fears blow monetary union off course


Europe Editor

This has been a shocking week for proponents of a single European currency - perhaps the worst week since July 1993, when turbulence on the currency markets blew apart the European Union's Exchange Rate Mechanism.

Private bankers and economists now are openly questioning whether the EU will meet its target of launching monetary union in January 1999. The date remains sacrosanct to politicians in many EU capitals as well as to the European Commission, but the economic and political obstacles are looking increasingly formidable.

The four countries most directly involved in the crisis - Germany, France, Italy and Belgium - were all founder-members of the original European Economic Community in 1957, an indication that the dispute over monetary union reaches to the core of the EU's identity.

The problems concern German political attitudes to a single currency, the economic performance of France, Italy, Belgium and other prospective participants, and the issue of persuading parliaments and public opinion to go ahead with the project. But there are other unresolved matters: what to call the single currency, how to introduce it as legal tender, and how to manage the exchange rate and trade relationship between countries in the monetary union and those - probably including Britain - that will stay outside.

The week began badly when the Commissioner for monetary affairs, Yves- Thibault de Silguy, rebuked the Swedish government for saying Sweden's entry into monetary union would be subject to ratification by the Swedish parliament. Mr De Silguy noted sternly that only Britain and Denmark had negotiated the formal right to opt out of the project if they wished.

What Mr De Silguy did not mention, however, was that under the terms of Germany's ratification of the Maastricht treaty, the two chambers of the German parliament must agree that the "convergence criteria" have been fulfilled by all participants before monetary union can go ahead. These criteria include low inflation and interest rates, upper limits on budget deficits and public debts, and two years of exchange rate stability in the ERM.

For some time, Germans have been suspicious that they are being asked to give up their hallowed Deutschmark for a European currency that will be infected with inflation and instability from other countries. The latest poll by Eurobarometer, an EU research group, shows 50 per cent of Germans against a single currency and 38 per cent for, virtually the same levels as in Britain.

As a result, the German government and Bundesbank have stressed this year that there must be no bending of the Maastricht criteria to favour certain countries. Indeed, Germany's Finance Minister, Theo Waigel, said that, as regards budget deficits, governments should aim for a level even lower than that set out in Maastricht.

On Wednesday he went further than any German minister had previously gone by naming Italy and Belgium as countries whose budgetary discipline was so lax that their entry into a single currency in 1999 was doubtful. Some economists say he could have gone further by questioning France's ability to make the grade.

The French government announced a budget on Wednesday designed to cut its deficit and meet the Maastricht criteria by 1999, but the foreign exchange markets are not wholly convinced. They are asking both whether the deficit reduction measures are sufficient, and whether France can tolerate an unemployment rate of roughly 12 per cent as the price for joining a single currency.

France, Belgium and Italymay hope to exploit a loophole in Maastricht that allows countries to join a single currency if they are making clear progress towards the target of cutting budget deficits to 3 per cent of gross domestic product and public debts to 60 per cent of GDP. But it is this loophole that Mr Waigel intends to close by demanding strict observance of the treaty.

The real problem for the EU is that Mr Waigel's demand for extra budgetary discipline may be incompatible with President Jacques Chirac's commitment to achieve a significant fall in French unemployment. If Mr Waigel does not back down, Mr Chirac could threaten to reject the 1999 date for starting the single currency.

But if Mr Chirac seeks a favourable interpretation of the Maastricht terms for France, the German parliament could block the launch of monetary union. Add to this the fact that Italy and Belgium could try to paralyse EU business if they are excluded from the single currency in 1999, and the European Union has a potentially gigantic crisis on its hands.

Start your day with The Independent, sign up for daily news emails
Homeless Veterans charity auction: Cook with Angela Hartnett and Neil Borthwick at Merchants Tavern
charity appeal
Amir Khan is engaged in a broader battle than attempting to win a fight with Floyd Mayweather
boxing Exclusive: Amir Khan reveals plans to travel to Pakistan
Arts and Entertainment
Strictly finalists Simon Webbe, Caroline Flack, Mark Wright and Frankie Bridge
tvLive: Simon Webbe, Caroline Flack, Mark Wright and Frankie Bridge face-off in the final
Ched Evans in action for Sheffield United in 2012
footballRonnie Moore says 'he's served his time and the boy wants to play football'
Have you tried new the Independent Digital Edition apps?
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Finance Director

£65000 - £80000 per annum: Recruitment Genius: Finance Director required to jo...

Recruitment Genius: Medico-Legal Assistant

£15000 - £25000 per annum: Recruitment Genius: This is a unique opportunity fo...

Ashdown Group: (PHP / Python) - Global Media firm

£50000 per annum + 26 days holiday,pension: Ashdown Group: A highly successful...

The Jenrick Group: Quality Inspector

£27000 per annum + pension + holidays: The Jenrick Group: A Quality Technician...

Day In a Page

Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture