Kohl acts to quash revolt over the euro

Chancellor Helmut Kohl sought to quell a Euro-sceptic rebellion in the government ranks yesterday by mortgaging his political future to hard-liners who insist on the strictest interpretation of the Maastricht criteria.

Although Germany has no chance of keeping its budget deficit below 3 per cent this year, Mr Kohl insisted the goal remained within his reach. "We are sticking to three-point-zero. That is no problem. And within the schedule," he said in Munich.

Addressing a conference of business leaders, his words were aimed primarily at Bavaria's Prime Minister, Edmund Stoiber, who has emerged as the most powerful adversary of economic and monetary union (Emu), even urging postponement if the criteria were not met.

Mr Kohl had gone to Munich carrying a speech denouncing the "unhelpfulness" of government politicians who question the government's ability to deliver the magic numbers. But at a crucial point in the speech, he departed from the prepared text, serving up soothing words rather than admonition to his foe.

Mr Stoiber was generous in victory, welcoming Mr Kohl to the inner sanctum of the "three-point-nought" club with open arms. "I am happy that it will be three point zero," he said with not a hint of irony.

Most economists, European governments and even the Bundesbank maintain that a few tenths of 1 per cent do not matter, and are perplexed by the Bavarians' "decimal-fetishism".

"A euro that is permanently stable is in Germany's interests," the Bavarian leader declared last week. "To pursue a course of relaxing the standards would lead to a union of inflation and debt, and harm our nation, and ultimately European integration."

Mr Stoiber went on to promise "fierce resistance" to German attempts to fudge the criteria - a thinly veiled threat to mobilise his MPs against monetary union. His remarks unleashed fury in the government. Mr Kohl let it be known discretely that he was hopping mad. Wolfgang Gerhardt, leader of the Free Democrats, the third party making up the coalition, charged Mr Stoiber with "anti-euro populism".

The row could not have come at a worse time for Mr Kohl. The recent confrontation with the Bundesbank has highlighted his government's inability to meet the Maastricht targets by honest means, and, by extension, its commitment to a hard euro.

His conversion to 3.0 is likely to defuse the row for the moment, but stores up greater calamities for the future. Mr Stoiber will not get off his hobby-horse, because the issue is part of a bigger game. In reality, decimals have nothing to do with the euro-debate, but a great deal with realpolitik. Mr Stoiber governs the most Euro-sceptic and most conservative Land in Germany. Emu is unpopular, especially among right-wing voters.

The ruling Christian Social Union is in danger of losing its absolute majority in next year's elections to the Bavarian assembly. The biggest threat to Mr Stoiber's survival comes not from the left, but from mushrooming anti-party alliances which are bitterly opposed to all things federal and European.

That is one reason why the CSU, whose MPs prop up Mr Kohl's government in Bonn, cannot afford to go soft on the euro. Reason number two is more Byzantine. The person widely blamed for Germany's failure to meet the criteria is the finance minister, Theo Waigel, also a Bavarian.

There is little love lost between the two CSU heavy-weights, and Mr Stoiber seems to take pleasure in advertising his rival's shortcomings. The failure to deliver 3.0 this year will be the most obvious Waigel legacy, which is why Mr Stoiber will never let the magic number slip out of public sight.