Bad news from Bonn heightens EMU fears

Predictions that European Monetary Union may have to be delayed were reinforced yesterday by new figures suggesting that even Germany may fail to meet the conditions for the 1999 launch date.

On Thursday British ministers suggested that the collapse of monetary union plans was imminent and that France and Germany may be forced to change course within weeks.

The remarks were fiercely rejected yesterday by the European Commission and treated with suspicion in many European capitals, where the comments were widely seen as an attempt to undermine the entire venture.

However, serious doubts about the feasibility of merging major European currencies on the terms set out in the Maastricht treaty remained widespread. Speaking at a conference in Germany yesterday, Philippe Seguin, the Gaullist head of the French National Assembly, described the present EMU timetable as "risky and questionable".

Germany's latest economic predictions added to the gloom. Bonn announced that it expects its public spending deficit for 1996 to be about 3.5 per cent of economic output - exceeding the Maastricht rules for joining EMU by 0.5 of a point. Countries wishing to join monetary union in 1999 must have achieved the 3 per cent deficit limit by the end of 1997. Earlier this month, Theo Waigel, the German finance minister, predicted that Germany's budget deficit would be brought down in time to the 3 per cent level. His predictions now seem highly optimistic.

A report by the economics ministry said that the German economy would grow by only 1.5 per cent this year. Unemployment would rise by 250,000 to average 10 per cent of the workforce - up from 9.4 per cent in 1995.

But officials in Bonn made it clear last night that the government is determined to stand firm on the EMU timetable, in the belief that any weakening would remove budgetary discipline from Germany and other EU countries and make the economic situation worse.

The European Commission continued to reject predictions of imminent collapse. Officials accused British ministers of capitalising on the wave of nervousness in Europe for domestic political purposes; the Government negotiated an opt-out from the single currency at the Maastricht summit in 1991, and Tory Eurosceptics have demanded a commitment to keep sterling independent but the Prime Minister has refused to make a decision until next year.

"Nothing that has happened this week suggests any real sapping of political will in France or Germany," said one senior official. Commission economists argue that the economic news is not yet so desperate that the EMU timetable, or rigid budgetary discipline, must be abandoned. This would only happen if a recession looked inevitable "and there are no signs of that," they insist. Other economists are not so confident.

Speaking in Paris, Yves Thibault de Silguy, the EU Economic Commissioner, repeated earlier Commission predictions that between eight and 10 countries should be able to meet the Maastricht criteria for monetary union by the end of 1997. He said that a delay in the launch would mean a renegotiation of the Maastricht treaty.