German progress to EMU under spotlight

Germany's progress towards the Maastricht criteria will be discussed by European finance ministers in Brussels today, amid persistent speculation that German economic problems will cause EMU to be delayed.

The German finance ministry denied claims in the German press at the weekend that secret government calculations place the deficit this year at 4.15 per cent. This is considerably higher than the 3 per cent Maastricht target and the official forecast of 2.9 per cent that finance minister Theo Waigel will set before his colleagues today at the Ecofin meeting.

Mr Waigel will present the German "convergence plan" which shows government borrowing in 1997 at 2.9 per cent of GDP, debt at 61.5 per cent of GDP, inflation at 1.5 per cent and interest rates at 6.5 per cent.

The French government is also due to present its convergence plan to the Ecofin meeting. But in recent months the French economy has received less attention than its German neighbour, as most economists believe France will find it less difficult than Germany to meet the Maastricht criteria.

Klaus Kinkel, the German foreign minister, said yesterday from an informal meeting of European foreign ministers in Apeldoorn: "I think we have reached the point of no return on the way to the euro. Not getting there would be a blow to Europe."

Nevertheless, doubts remain across Europe over Germany's ability and determination to achieve a single currency on time. Unemployment is 4.7 million putting pressure on the government's fiscal plans.

The speed with which growth picks up later in the year will be critical in determining how much the German government has to do to get borrowing down. It will be hoping for good news when the IFO survey of German business confidence is released this week.

Although the Maastricht Treaty allows some flexibility for interpretation, the German government has attached so much significance to the Maastricht numbers in the past, that it will be hard to persuade the German public to sign up to the euro if the criteria are missed.

A poll of 700 Germans published in the German paper Welt am Sonntag this weekend found 57 per cent were against currency union, citing fears that the euro would be weaker or less stable than the mark.

Germany's European partners are expected to endorse and support Mr Waigel's convergence plan when they meet today. However, political tension is likely to grow if other countries suspect that Germany is not prepared to introduce the measures necessary to meet the Maastricht criteria on time.

Spain and Italy in particular have undergone substantial fiscal reforms to try to meet the tests that the Germans said were so important.

Cristobal Montoro, the Spanish economic minister, said yesterday: "Spain already fulfils three convergence criteria." The critical question will be whether the Spanish government can reduce its deficit far enough.

Portugal looks a strong candidate to meet the Maastricht criteria on time.

Presenting his economic plan for the years 1998-2000, Antonio Sousa Franco, the Portuguese finance minister, said on Friday: "It looks forward to Portugal being amongst the founders of the third phase of economic and monetary union, something which we believe in."

Portugal's deficit is already below the Maastricht 3 per cent limit, and inflation is coming down.