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Europe: Clearing Budget Hurdle Paves Way To Single Currency

  • Stuart Parrott



London, 23 February 1998 (RFE/RL) -- Plans to launch a single European currency next year will be boosted this week when EU applicant countries publish statistics expected to show that most, if not all of them, have met the strict budget criteria for membership.

Almost all the 11 EU applicants hoping to be in at the start of the single currency are expected to announce that their budget deficits last year did not exceed three percent of their gross domestic product -- thus meeting the tough Maastricht Treaty entry rules.

If this proves the case, the way will be open for the single currency -- described as the most ambitious monetary project in history -- to be launched on schedule on January 1, 1999.

All 15 EU members, except Greece, have already cleared the other economic hurdles laid down by Maastricht: convergence of interest and inflation rates. But four, Greece, Britain, Sweden and Denmark, will opt out of the single currency, at least for now.

The other 11 EU partners are expected to announce that they -- more or less -- met the three percent budget deficit target last year, a performance helped by stronger than expected growth.

There is a question mark over France, a prime architect of the single currency, which is expected by economists to announce a government deficit of 3.1 percent -- just over the Maastricht limit.

However, analysts say France's failure, although embarrassing, will not jeopardize its bid to be in at the launch, since it is close enough to the target (although this was achieved only at a cost of tax rises and spending cuts that caused widespread unrest).

There is also a question over Italy, one of the most enthusiastic supporters of the single currency, which is expected to announce it has hit the "magic number", but is accused of "cooking" the figures.

Germany, saddled with the cost of reunification, is likely to comfortably attain the Maastricht criteria, with forecasts suggesting its budget deficit last year amounted to 2.8 percent of GDP.

The new numbers, contradicting forecasts throughout last year, are a welcome relief for Chancellor Kohl, who has seen momentum at home against the single currency gathering pace in recent weeks.

Opponents of the single currency across Europe claim that the EU powers have used what one reporter calls "fiddles and conjuring tricks" to meet the strict budget criteria laid down by Maastricht.

They say the Italians levied a one-off "Eurotax" to cut its deficit; the French government appropriated public sector pensions; and that Germany excluded its health service debts from its figures.

Critics say the inclusion of the Italians in the single currency zone is a recipe for failure because of their weakness for public spending. Some economists say Italy has a public debt ratio twice as high as permitted, amounting to a quarter of the EU's debt burden. This has fueled fears that the north Europeans will have to swap their "hard" deutschmarks and guilders for "soft" euros.

If, as predicted the single currency hopefuls announce they have met the budget criteria, what then? Each applicant has to clear several hurdles before they are admitted to the launch "party".

Eurostat, the EU's statistical office, will examine the national data and give a verdict on its accuracy. Its judgment will be given to the European Commission, due to deliver its view next month on what countries are fit to join. The Commission, given its commitment to a single currency, is expected to view all 11 applicants positively. But more critical appraisals could come from the European Monetary Institute (the forerunner of the proposed European Central Bank), and Germany's central bank, the Bundesbank, both of which are committed to a strong euro to replace the deutschmark.

The euro faces other hurdles: including a challenge in the German Constitutional Court and debates in EU national parliaments. And German officials are reported to be planning what one reporter says would be unprecedented and humiliating, for the Italians, scrutiny of Rome's public accounts, treating them in effect as untrustworthy.

Still, an analyst in the Observer newspaper says the political momentum behind a single currency is now so huge that it's almost certain to go ahead. The biggest task is deciding who is in, and who is out. As he says, in every Eurocrat's diary, Saturday, May 2, is circled in red -- the day when EU heads of government meet in Brussels to confirm entrants to the first wave of the single currency.

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