Italian setback on EMU

Italy's prospects of joining EMU in the first wave in 1999 appeared dented this week. There were reports of a Franco-German pact to exclude it from monetary union in 1999 and adverse comments from the European Monetary Institute, the forerunner of the European Central Bank, writes Chris Hughes.

Italian newspaper reports said Germany had persuaded France to agree to exclude Italy on the grounds that corrections to its budget were cosmetic. Many Germans fear the euro would be weaker than the Deutschmark if Italy joined in 1999. The reports suggested that Germany had threatened to delay the entire project.

Alison Cottrell of Paine Webber said the Italian electorate was being softened up for the news that Italy would not be taking part in 1999. While Germany is keen to exclude Italy from the first wave, it may not qualify itself. However, according to Michael Lewis of Deutsche Morgan Grenfell, officials were this week talking about calculating Germany's budget on the basis of the former West Germany.