Brussels fights to stem panic as EMU totters

SARAH HELM

Brussels

TONY BARBER

Europe Editor

Doubts about the timetable and conditions for the creation of a European single currency rose to fever pitch yesterday.

Valery Giscard d'Estaing, the former French president, joined the ranks of senior pro-European politicians who have warned that imposing rigorous EMU conditions during an economic downturn could damage European economies and the stability of the European Union itself.

The European Commission was yesterday desperately trying to shore up confidence in the plans to merge leading EU currencies by 1999. But the Commission has been infuriated by the remarks earlier this week of its former President, Jacques Delors, who suggested that the target date set by the Maastricht treaty in 1991 might have to be abandoned.

There was also consternation at the remarks of Carlos Westendorp, the Spanish Foreign Minister, who said there was a secret understanding between European governments that EMU could not go ahead with France, Germany and the Benelux countries alone. Unless one other large country - Britain, Spain or Italy - was prepared to join by 1999, the EU would have to "stop the clock" on the whole project, Mr Westendorp said. "We are in a situation of a credibility crisis in the entire project."

At a packed press conference in Brussels yesterday Jacques Santer, President of the European Commission, attempted to hold the line, arguing that stopping the clock would "not stop the 21st century", and saying it was "irresponsible" to sow the seeds of doubt.

However, Mr Santer suggested for the first time that the Commission might consider a review of the EMU membership rules, as proposed by Mr Giscard d'Estaing. Under the plan put forward by the former French president the economic performance demanded of countries wishing to join EMU could be relaxed if the economic cycle was heading downwards. Such a plan would run into stiff opposition from Germany.

Mr Santer's aides were yesterday reported to be "spitting blood" over Mr Delors's intervention. "The view is that he is the guy who got us into this trouble. It was he who proposed such rigid criteria. If there is any finger-pointing to be done it should be at him," said one seniorofficial.

This week's crisis - sparked by poor economic figures and forecasts in Germany and France - has revealed for the first time that European leaders are beginning actively to examine mechanisms for delaying monetary union. Some experts in Brussels are discussing whether there is a mechanism for calling a delay under the existing Maastricht treaty. Commission officials are drawing up a legal opinion which, sources say, will affirm that there is no means of calling a delay without rewriting the Maastricht treaty.

The EU is not due to name participating countries until early 1998, and the decisions will be made on the basis of 1997 economic performance. For this reason, it is unlikely that an announcement delaying or revising the timetable is imminent.

Adopting the Giscard approach - relaxing the EMU conditions rather than the timetable - would mean that countries would not be obliged to bring their budget deficits to 3 per cent of GDP or below in 1997, but could allow them to run slightly higher. Such a liberal interpretation would favour many countries that are having trouble reducing their deficits in time, notably France, although Germany also overshot the target last year.

But Germany's Finance Minister, Theo Waigel, has set out conditions so diametrically opposed to those of Mr Giscard d'Estaing that it is hard to see how they could be reconciled. He says governments using the Euro currency should ideally run deficits of no more than 1 per cent of GDP, should be fined if they break the rules, and should be expelled from the single-currency arena if they are persistent offenders.

Still, it appears that a frantic search is on for ways to prevent the collapse of the 1999 timetable. "If we fail, I fear we will start an irreversible disintegration process," said Belgium's Prime Minister, Jean-Luc Dehaene.

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