Will Europe ever be ready for the Euro?

How quickly pleasure can turn to pain, hope to despair and optimism to embarrassment. Only one month ago, European Union leaders meeting in Madrid were congratulating themselves on having finally chosen a name for the planned single currency - the Euro - and on having set out in detail the process by which monetary union would start in January 1999 and be completed in 2002.

For a moment, it seemed that this most politically driven of European projects could really begin on schedule despite concerns about the economic health of numerous would-be participants. In Madrid, few EU leaders wanted to be reminded of problems such as those in France, where prolonged public- sector strikes and an anticipated slowdown in growth appeared to be undermining the government's chances of meeting the Maastricht treaty's conditions on low budget deficits.

Now, however, a new and potentially devastating obstacle to the Euro's successful birth has arisen from a most unexpected quarter - Germany, the economic powerhouse of Europe and linchpin of the monetary union plan. Data published last week showed that the German economy had all but spluttered to a halt, with growth of only 1.9 per cent in 1995, unemployment up sharply last month from 9.3 to 9.9 per cent, rising bankruptcies and weak industrial orders.

Worse still, Germany's Finance Minister, Theo Waigel, who had spent the closing months of 1995 arguing for stricter measures to ensure EU budgetary discipline after the Euro's launch, was obliged to confess that Germany had failed last year to meet Maastricht's stipulation that a country entering monetary union should have a budget deficit of no more than 3 per cent of Gross Domestic Product. Germany's 1995 deficit turned out to be 3.6 per cent, a figure that shocked German economists and provided scope for much Schadenfreude in the press of other EU countries.

"Jesus Christ is dead, Karl Marx is dead, and even Germany isn't feeling very well," the Milan newspaper Corriere della Sera wrote mockingly. A wicked but understandable gibe: it was Mr Waigel who asserted last year that Italy would fail to meet the grade for the single currency.

Before assessing whether the Euro is still on course for its 1999 launch, it is worth observing that no EU country in its senses should seek comfort from Germany's troubles. A slowdown in the German economy means fewer imports from other EU states, and this translates into lower growth and higher unemployment across the whole of the EU.

British opponents of the single currency should bear in mind that the most likely reason for delaying monetary union will be a recession or so-called "pause in growth" in the European economy that puts the Maastricht targets on low deficits and public debts beyond the reach of key countries such as France, Italy, Belgium and, it seems, even Germany. Yet Britain, with its opt-out from joining the single currency in 1999, would have no cause for joy, since any recession or slowdown in other EU states would hit British jobs and prosperity as well.

That said, it does seem increasingly strange for EU governments to be engaged in drastic budget-cutting and tax-raising measures at a time of low growth and stubbornly high unemployment - 11 per cent across the EU as a whole. Governments have been forced into this policy straitjacket for the sake of meeting fiscal targets for a year that was quite arbitrarily selected by negotiators meeting in a Dutch town in 1991.

"One cannot conceive of monetary union with 11 per cent unemployment," Italy's Prime Minister, Lamberto Dini, said last week. "This negative record must be corrected in a lasting way."

The defence put forward by the men of Maastricht is that they expected the European economy to be on the up in the late 1990s and so it would prove relatively easy for most countries to meet the treaty's conditions. However, it is difficult to avoid the conclusion that the choice of 1999 was essentially political in nature, designed to ensure that monetary union got under way, come hell or high water, before the end of the century.

EU leaders agreed in Madrid that they would decide in early 1998 which countries have qualified for monetary union. Ominously, the only country that currently meets all Maastricht's conditions in full is Luxembourg, which contains 0.1 per cent of the EU's population.

During this year and 1997, therefore, we can expect to see a feverish scramble in most EU states to cap spending and cut public debts at just the time when the European economy needs a return to expansion. In France, where the conservative government's austerity measures recently provoked the worst social unrest since 1968, it is quite likely that the government will have to impose more belt-tightening this year in order to meet Maastricht's deficit target.

This can only put more downward pressure on French growth, delay a fall in unemployment and contribute to social tension. In the country where the Maastricht treaty was only narrowly approved in a 1992 referendum, it is quite possible that public opinion will see fewer and fewer merits in monetary union.

However, all this need not mean the Euro is doomed. For one thing, a little-noticed clause in Maastricht, Article 109j (4), could be interpreted to let the EU choose a date other than January 1999 for launching monetary union.

Under this clause, the EU would have to pick another date by the end of 1997. Although many EU countries still refuse to contemplate the possibility of postponing monetary union, Maastricht provides an escape route if governments want to use it.

Another possibility is that the EU will put a favourable gloss on the fiscal performances of member-states keen to get the Euro going. Maastricht says that countries can be deemed to have qualified for the single currency if their deficits and debts are heading consistently towards, rather than actually meeting, the specified targets of 3 per cent and 60 per cent of GDP.

Until recently, Mr Waigel was insisting Germany would forbid any laxity in interpreting this section of Maastricht, but Germany's surprisingly high 1995 deficit has undermined his case. Conversely, it has helped countries such as France and Belgium which may struggle to reach the Maastricht deficit and debt levels in time but which can argue that they are on the right path.

Paradoxically, Germany's economic difficulties may therefore make it more likely that the Euro starts on schedule. Postponement of monetary union for a few years is certainly a strong possibility, but it is too early yet to rule out a launch as planned in 1999.