Better late than never for EMU

Plans for a single European currency are in serious trouble. Its supporters should ease up or risk the project blowing up in their face.

Even the great Europhiles of the Continent are starting to worry. On Tuesday, Jacques Delors, the former president of the European Commission, admitted he doubted the timetable for European Monetary Union could be met. Yesterday, the former French President Valery Giscard d'Estaing called for a relaxation of the economic criteria that countries have to meet before the currency can be created. Spain's Foreign Minister, Carlos Westendorp (known at home as "Mister Europe"), called for the deadline of 1999 to be put back, saying that the project was sinking into a "credibility crisis".

In response, Jacques Santer, the European Commission President, yesterday speaking at the end of an ill-timed show designed to market the "Euro", rejected a delay.

The trouble for Mr Santer is that the growing doubts about the EMU timetable are unlikely to fade. That is because the Maastricht treaty on monetary union did not anticipate the sharp slowdown in the European economy in the past six months. Only countries that meet strict economic criteria can join the common currency. Most countries already have lower inflation than Maastricht demands. But on another key condition even Germany is not doing too well, with a budget deficit above the 3 per cent of national income that the treaty allows. In France, the prognosis is much gloomier. Slow growth means tax revenues are lower than expected, while public spending remains high to cope with unemployment. German and French efforts to reduce their budget deficits by cutting spending or raising taxes risk slowing their economies even further, making the problem worse.

The political costs of forcing France into the Maastricht strait-jacket are even more severe, witness the strikes that crippled much of the country late last year and exposed the frailty of the French ruling elite.

All of this will be music to the ears of British Euro-sceptics. But they would be foolish to start celebrating the demise of the Euro prematurely. With an effort, Germany will probably be able to meet the Maastricht criteria by 1999. The fact that countries should not unite their currencies yet under the current Maastricht criteria doesn't mean they shouldn't unite at all. The German mark will still dominate European currency markets regardless of whether there is EMU. In many respects we have already lost a lot of discretion over monetary policy to the Bundesbank. At least a European central bank would set interest rates, taking account of the needs of all EU states, rather than giving Germany priority. The case for a single currency remains strong. But the case for delaying its introduction, perhaps till 2001, has got stronger.

There is an alternative. Delay might be interpreted by the public and the markets as a loss of purpose and direction. Another way out would be to stick with 1999 but relax the Maastricht criteria. Instead of the 3 per cent ceiling on the budget deficit, a broader definition could allow countries with sound economies to borrow more in times of recession. Mr Santer has said he might consider this. The Germans wouldn't be happy, of course, strict economic criteria are essential to persuade the Bundesbank and the German public to give up their precious mark.

But something, somewhere is going to have to give. Monetary union without the French is inconceivable. Yet for France and others to join under the current criteria risks associating EMU with deflation and recession. Political and economic pain could make the Euro untenable, irrevocably damaging the whole European project. Europe needs to heed its elder statesmen and ease up on EMU.