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EU: Single Currency Runs Into Serious Trouble

Prague, 9 June 1997 (RFE/RL) - The European Union's six-year drive to create a credible single currency before the end of the century is in serious trouble. Ironically, much of the trouble emanates from France and Germany. The two countries together first conceived the idea and then convinced other members of the EU --which today numbers 15-- to incorporate it into the 1992 Maastricht Treaty that created the Union out of the former European Community. Maastricht laid down guidelines for future internal integration, including full economic and monetary union --known as EMU (for European Monetary Union).

Both France and, particularly, Germany insisted on including in the Treaty strict economic criteria for joining the European Monetary Union (EMU). Now both, like two-thirds of the EU's members, are suffering from high unemployment and low economic growth, and seem unlikely to meet those standards themselves when the selection of the first wave of eligible EMU members is made next Spring (May or June, 1998).

The election eight days ago (June 1) of a new Left Government led by Socialist Lionel Jospin has raised strong doubts about France's commitment to EMU. During the election campaign, the French Left made clear that it would not order any more austerity measures needed to cut the nation's budget deficit down to the level (three percent of gross national product) that a strict reading of the Maastricht Treaty requires of EMU participants.

Jospin also voiced other objections to a too rigid interpretation of Maastricht. He said that Italy and Spain --which are not likely to join the first wave by any reading of Maastricht-- shouldd be included. He also called for re-negotiating the tough terms of the EMU Stability Pact negotiated last year to protect the strength of the new currency, known as the 'euro." Those were clear signs that the new French Government would now insist on political rather than the originally conceived independent central-bank control of EMU.

Today, at a meeting of EU finance ministers in Luxembourg, Jospin's super-minister for economic and financial affairs, Dominique Strauss-Kahn, called for what he called a "period of reflection" before the EU formally adopts the Stability Pact. That means the pact will not be ratified by the 15's leaders when they meet a week from today (June 16) for a two-day summit meeting in Amsterdam.

At the same Luxembourg meeting, German Finance Minister Theo Waigel said his country would insist on a strict reading of Maastricht, putting him and his boss, Chancellor Helmut Kohl, on a collision course with France. Yesterday, Kohl said that "the criteria in the Maastricht Treaty are not up for discussion.." The Chancellor is due to meet in France with Jospin as well as with conservative President Jacques Chirac on Friday (June 13) in a pre-Amsterdam bilateral meeting to work out the differences between the two countries' views. Kohl and Chirac have been trying to do that --unsuccessfully-- for the past two years, and with Jospin now entering on scene, it would seem harder than ever to reconcile them.

In addition, Kohl and Waigel have their own internal problems in meeting the Maastricht criteria. An attempt two weeks ago by both men to revalue the country's gold reserves, so as to make it eligible for first-wave EMU entry, provoked a public rebuke from the head of the Bundesbank, the country's most respected institution. At first, they sought to bull-doze their way through, but when the German public showed itself as clearly siding with the "Buba" (Bundesbank), Kohl and Waigel caved in. As they did, analysts said that Bonn would now seek another way of juggling their countries' books that would n-o-t incur the central bank's ire.

Throughout the current decade, EMU has been promoted by its proponents as the glue that would hold the EU together as it made its planned expansion to the East and almost doubled its membership within the next 10 to 15 years. But the glue has turned thin and now appears more as a dis-unifying than a unifying factor. To thicken it, it is clear that the EMU criteria will have to be what Brussels officials call "reinterpreted," --that is, softened-- despite Kohl's public objections.

Only by allowing France, Germany and other key EU members to indulge in the sort of creative accounting that nations regularly do within their own borders can the euro be saved. That now seems highly likely --as does the possibility of the new "euro" entering the world as a weak currency rather than the strong one initially conceived to compete with the U.S. dollar.