Kohl and Chirac make renewed pledge on EMU

TONY BARBER

Europe Editor

The German and French governments attempted yesterday to put European monetary union back on track and remove doubts created by political disputes in Germany and economic uncertainty in France. Chancellor Helmut Kohl told the German parliament that French participation was essential to the creation of a single currency, which was "not a Kohl game but a central pillar of German policy".

President Jacques Chirac, addressing the new French government appointed on Tuesday, underlined his reversal of economic priorities by promising a determined assault on the state budget deficit.

France needs to reduce the deficit to 3 per cent of gross domestic product to qualify for the European Union's planned launch of a single currency in 1999, but until two weeks ago Mr Chirac was laying more emphasis on the fight against unemployment.

This contributed to instability in the franc as bankers questioned his commitment to spending cuts and hence to the 1999 single currency target date. Mr Chirac's switch of economic course, given dramatic expression by the reshaping of his government this week after only six months in office, followed a decisive meeting with Mr Kohl in Bonn.

The two leaders felt it necessary to pledge themselves anew to the 1999 timetable, set out in the Maastricht treaty, to prevent the delay or even collapse of the single currency project. Mr Kohl, though personally committed to monetary union, has trouble on two fronts, with German public opinion sceptical about giving up the mark and the opposition Social Democrats (SPD) threatening to make the single currency a campaign issue in the next national elections in 1998.

The SPD may pass a motion at its conference next week demanding tighter financial discipline than foreseen in Maastricht from countries hoping to join a single currency. SPD leaders have suggested monetary union should be delayed beyond 1999 rather than go ahead if the economic health of some countries remains in doubt.

Such declarations are aimed at Germans worried that an all-European currency will prove weaker than the mark, but they go down badly with the European Commission and certain EU governments opposed to any tinkering with Maastricht. For example, Belgium feels it should join the single currency in 1999 because, even if its public debt is unlikely to fall in time to the required level of 60 per cent of GDP, there is a loophole in Maastricht that lets in a country if its debt or budget deficit is deemed to be heading in the right downward direction.

By drawing attention to such escape clauses, the SPD seeks to imply that Mr Kohl's government lacks the determination to protect German prosperity by insisting on European financial rectitude. Mr Kohl will not want to be seen as less firm than the SPD over which countries enter the single currency.

However, this raises problems for EU members such as Italy and Spain, which are not seen in Germany as serious candidates for monetary union in 1999 but which, at least publicly, have yet to reach that humiliating conclusion themselves. As for Mr Chirac, forced to water down his election promise of slashing unemployment, now 11.4 per cent, it remains to be seen how patiently he will wear the economic straitjacket placed on him by the Maastricht timetable and Germany's rigorous attitudes.