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Europe: German Economists Advocate Postponement Of Monetary Union

  • Joel Blocker

Prague, 10 February 1998 (RFE/RL) -- Strong doubts about launching the European Union's Economic and Monetary Union (EMU) -- and its new single currency, the "euro"-- next January as scheduled have again been voiced by economic analysts. This time, the questions were raised by 155 German economics professors, who appealed collectively for what they called an "orderly postponement" of EMU because, they said, economic conditions are "most unsuitable" for beginning the project in less than 10 months.

In an bluntly phrased open letter published yesterday in two West European newspapers (Germany's "Frankfurter Allgemeine Zeitung" and Britain's "Financial Times"), the German economists warned that is too early for an EU common currency and urged that its birth date be put off for several years. They said that proceeding on schedule would doom the EU's planned monetary union to failure because key conditions for success, such as the reduction of public debt, have not been adequately met. They argued that EMU's sustained success is more important than a prompt start, saying that postponement "has to be seriously considered as a political option."

This was hardly the first time such doubts have been raised by economists --and, sometimes, even by high officials in EU member states. But for at least three reasons the questions posed in the German professors' open letter had a far greater impact than most earlier warnings.

First of all, the questions were stated by an unusually large group of experts, many of them respected and prominent members of the German economic establishment. Second, the doubts they expressed came from a country where opinion-polls show well over two-thirds of the population is uneasy about the euro's arrival. And third, Germany has both the biggest economy in the EU as well as a conservative government and social democratic opposition that is now united in supporting EMU's scheduled launching.

The launch date as well as the criteria for joining EMU were laid down in the 1992 Maastricht Treaty that transformed the European Community into a Union. The treaty, originally a Franco-German initiative, prescribed a common currency as the best means of uniting Europe into a forceful economic bloc able to compete in the increasingly global economy. But to qualify, an EU member had to have its economic house in order, most notably in holding inflation down and running a budget deficit of less than three percent of its gross national product.

In the early years of the current decade, Western Europe's economy was generally in good shape. At the time, the greatest obstacle to the euro was seen as national public opinions that in many cases did not want to lose their native currencies. But in recent years, as recession and growing unemployment have overtaken many EU members --especially France and Germany-- many analysts have come to see the major obstacles as economic.

The analysts find that too many EU countries have indulged in what they ironically call "creative accounting" in order to meet Maastricht's strict criteria. Italy, Spain and Portugal were among the first nations criticized, but in the past two years France and Germany themselves have also been cited. The analysts say that both these countries and others will --thanks to the shuffling of national account books and interest rates-- just be able to meet the three percent deficit target. But they believe national deficits should be closer to zero than three percent in order for the euro to have a healthy birth. Otherwise, they say, the currency will be weak from the outset.

The German professors' manifesto constituted the strongest and broadest expression to date of all these arguments. Even so, it was rejected out of hand by both EU officials and by the Germany Government's top leaders.

In Brussels, one EU Executive Commission spokesman said flatly that EMU's birth date was what he called "totally irreversible." Another Commission spokesman said there had been what he described as "significant progress on inflation levels and public finances." That progress, he said, was reflected in the financial markets' belief that the euro would be born on schedule.

In Bonn, Chancellor Helmut Kohl was quoted as telling a meeting of his Christian Democratic Union that putting off the euro's launching would be politically harmful and not be in Germany's interests. Foreign Minister Klaus Kinkel said that, without a common currency next year, the German mark, in his words, "would jump, our exports would collapse, economic growth would be halted and jobs threatened." And a statement by Germany's Finance Ministry added that there was no reason to delay what it called this "historic project (because) a European culture of stability has come into being."

Whoever is right in Germany, the professors or the Government, most analysts agree that the manifesto of the 155 probably came too late to alter what is now largely considered the inevitable launching of EMU on January 1. Their letter was published less than three months before an EU summit (May 1-3) is due to announce which member states are eligible to join the currency next year. According to most observers, 11 of the Union's 15 members are likely to be included. Britain, Denmark and Sweden have opted out of joining the euro immediately, and Greece is seen as so economically backward as not even to come close to qualifying.

In the end, then, the professors' manifesto is likely to be judged simply as too tardy to change the euro's birth date. It will also probably be seen as marking an important, but not decisive, stage in a very late-starting German public debate on EMU's probable advantages and pitfalls.