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Europe: The EU, The 'Euro' And The East - An Analysis

  • Joel Blocker



Prague, 7 April 1997 (RFE/RL) - Should citizens of Central and Eastern European nations be concerned over complicated decisions taken late last week about the European Union's coming single currency at the remote Dutch coastal resort town of Noordwijk?

The answer is "yes," even though those decisions involved arcane economic data and are not easy to understand. "Yes" for one relatively simple reason: The successful birth of the European Monetary Union (EMU) and the new currency called the "Euro," due in 21 months' time, will have a decisive effect on the EU candidacies of 10 area countries --Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia.

If EMU gets off to a healthy start on schedule --and the EU also agrees on basic institutional reforms within the next few months -- membership negotiations with some or all of the Eastern candidates are likely to begin, not coincidentally, just about when the Euro is born -- in early 1999. But if EMU is postponed or runs into other troubles, the failure would likely trigger a major crisis in the 15-nation EU and delay, if not derail, the entry of Eastern candidates.

What happened at Noordwijk amounted to a substantial boost for prospects for a successful launching of the Euro. Meeting for two days and one long night, finance ministers and central bankers of EU members took two decisions that had as much political as economic weight.

First, the ministers fixed the politically sensitive timetable for deciding which EU countries can join the monetary union from the start under the strict budget-deficit, inflation-rate and other criteria laid out in the Maastricht Treaty that created the Union more than five years ago. They agreed that the EU's Executive Commission and its European Monetary Institute -- the forerunner of the future European Central Bank -- will submit their recommendations in just about 12 months' time, that is, in late March of next year.

A month or so later, the ministers said, EU heads of government and finance ministers will meet in a special summit meeting in Brussels to pick the initial EMU participants and formally launch the European Central Bank. Although the ministers didn't say so officially, analysts believe that the likeliest date for the critical EMU selection is the May Day weekend of 1988 -- May 1, 2 and 3, when currency markets in most EU states will be closed for 72 hours.

Second, the Noordwijk meeting decided how EU members joining EMU, but subsequently violating the tough Maastricht standards, will be punished for financial malfeasance -- particularly for budget deficits over the allowed three percent of gross national product (GNP). The ministers agreed to a complex system of fines that in effect implemented guidelines outlined four months at an EU summit Dublin in what was then dubbed the EMU "stability and growth pact."

Under the now fleshed-out stability pact, a Euro-zone nation that allows its national deficit to rise above the prescribed three percent will automatically face hefty financial sanctions -- from 0.2 to 0.5 percent of its GNP. In a compromise thrashed out by the ministers on Saturday, the sanctions will take the initial form of deposits in escrow. Countries in violation of EMU rules will be able to get their money back, without interest, if they correct their deficits within two years. If they do not, their escrow deposits will become permanent fines that will be used to reduce overall EU budget contributions by EMU members which do adhere to the rules.

The Noordwijk accords were hailed by EU officials as a much-needed shot in the arm for EMU after weeks of growing doubts about its birth date. The doubts were partly the result of Germany's increasingly sluggish economy, the EU's largest, and partly because of apparent disagreements among the Union's policy-makers and bankers over the wisdom of proceeding with the Euro on schedule. But for EU Commission President Jacques Santer, all doubts were dispelled in Noordwijk. "Economic and monetary union is well on course," Santer told reporters Saturday. "We are at the finishing gate."

Two German decisions gave some support to Santer's optimism. At Noordwijk, Finance Minister Theo Waigel made it clear for the first time that Bonn would accept a flexible interpretation of EMU qualifying rules. That meant, he said, that Germany was ready for the Euro's launching even if it failed to get its own budget deficit down to the required three percent of GNP. And Waigel�s critical concessions came only 48 hours after Chancellor Helmut Kohl, the EU leader most supportive of both economic and political integration, announced he would run for a fifth term in office next year.

Could agreement on EMU rules by the EU's finance ministers be matched by accord on necessary structural reforms by it foreign ministers, who began their two-day meeting in Noordwijk yesterday? That question will not be answered until late today, or even later tonight. But analysts were not optimistic.

One critical question, the size -- that is, number of commissioners -- in the Executive Commission of an enlarged Union was the subject of two days of wrangling in Noordwijk, and apparently no agreement, among large and small EU member states. Other tough questions, such as possible majority rather than consensual voting on foreign-policy and defense questions, remain unresolved as well.

Officials and analysts agree that little progress on these and other crucial EU reform questions can be made before Britain's May 1 general elections, which are widely seen as likely to install a Labor government after 16 years of conservative rule. Their reasoning is that a Britain governed by Labor leader Tony Blair would be less concerned about its independence and more apt to make compromises on critical sovereignty questions than one ruled by Tory John Major.

Because this has become accepted wisdom for many in Brussels -- although by no means in London or in some other West European capitals -- there is now more and more talk at EU headquarters about a special summit meeting on institutional reforms. That get-together would take place at the end of next month, barely four weeks after the British elections. Its purpose would be to prepare the way for a triumphal, and already scheduled, summit a fortnight later in Amsterdam that will effectively end the current EU Dutch presidency.

The same officials and analysts say, however, that an EU triumph at Amsterdam is far from certain. Many say that, given the Union's current disunity, it is not even likely. All agree that the time to break out the champagne has certainly not yet arrived.
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