German and French cuts impress EU

In a display of determination to meet the single currency deadline, European Union finance ministers yesterday backed new German and French economic programmes, saying both countries would be in line for membership by 1999.

Undeterred by speculation about delay, ministers said the programmes of cuts presented yesterday by Bonn and Paris provided "all the necessary reassurance" that these two key economies would meet the Maastricht rules.

Germany's record unemployment of almost 4.8 million, has spurred predictions that Bonn will fail to bring its budget deficit under the 3 per cent ceiling set by Maastricht.

As he headed for the Brussels meeting, Theo Waigel, the German Finance Minister, assured Germans that the Euro would be as stable as the mark. Keeping to the strict economic criteria was more important than meeting the Emu deadline, he told the Bild newspaper, adding: "There won't be any soft Euro with me."

Mr Waigel's comments revived doubts about whether the deadline can be met, boosting the mark against the Spanish peseta and the Italian lira.

Comments from Karl Diller, budget spokesman for Germany's opposition Social Democrats, who said Germany would not meet the deadline because its spending was "out of control", produced further speculation.

But the finance ministers in Brussels were undeterred by evidence of continuing volatility.

The plans for further deep cuts in German public spending would enable Bonn to achieve its target of a 2.9 per cent deficit, the ministers insisted.

The news of Germany's growing debt failed to dent the confidence of the Finance Ministers. Mr Waigel presented a debt figure yesterday of 61.5 per cent of gross domestic product, which is above the 60 per cent level set out in the Maastricht Treaty.

The other countries accepted Mr Waigel's explanation that Germany's growing debt could be explained by "special circumstances", including the cost of reunification and a high contribution to the EU budget.

This readiness to show flexibility on the German debt question provided a further indication that the member states are preparing to fudge their interpretation of the convergence criteria as the deadline approaches.

Yves Thibault de Silguy, the economics Commissioner, said ministers had been reassured by Mr Waigel that Germany "would definitely take additional measures if any slippage occurs, especially on debt".