Fudging for the deadline

Eleven of the EU8217;s 15 member States now have Centre-Left governments and two others have the Left as participants bringing the total to 13. The Europe that meets for the summit in Amsterdam is a very different ball game from the Europe that signed the Maastricht treaty on the continent8217;s monetary, political and social union by the turn of this century. The new Europe will soon include former Soviet bloc countries and will have new problems resulting from social and economic disparities. lt is becoming increasingly clear that within Europe as well as outside, the international implications of a single currency are difficult to anticipate but even harder to ignore. quot;Earlier, politicians could talk about the EMU in almost vague terms. Now as the deadline approaches, it has become an electoral issue leading to electoral upsets and upheaval all around,quot; a European diplomat said.

Sunday8217;s meeting in Luxembourg will be the first chance that finance ministers will have to ask their German counterpart Theo Waigel about what many see as questionable moves to ensure German EMU qualification. The ability of Germany and France, European heavyweights, to meet the strict tests for EMU were thrown in doubt following an aborted German plan to revalue gold and the victory of the French Left made possible largely because of their public hostility to economic austerity required by the EMU.

France8217;s Socialist Party swept to power this week promising a new direction in European policies and heralding a shift in the way Europe puts together its plans for a single currency. French voters have rejected policies of austerity meant to comply with the German-led vision of Europe where only those countries with a solid track record on economic policies would be allowed into the hard-core EMU. Increasingly, politicians are finding that trying to meet the EMU8217;s demands sets them on a collision course with the electorate. France is a prime example of that. President Jacques Chirac gambled on his country8217;s preparedness for the EMU8217;s calender year beginning next year. The voters slapped him on the face.

If the EMU is backed by a credible monetary policy, it will play a more important global role than its constituent European currencies today. There are some who believe that the Euro, backed by strong economies, could become the world8217;s second key currency. Hence, the struggle to make it. European banks are taking out large advertisements in financial dailies saying the Euro will give the Dollar and the Yen a run for their money.

Next spring, EU heads of governments will decide at a summit whether the EMU should proceed. This will occur after the European Monetary Institute, the fore-runner of a European Central Bank, and the European Commission have judged which countries meet the single currency convergence criteria. Many, including Germany that is driving the engine will have difficulties, but politicians and analysts say the criteria can be interpreted flexibly. The Maastricht Treaty indicates that debts that are falling towards the target are acceptable. Deficits close to 3 per cent may also be acceptable.

And thereby begins the story of what many bankers and analysts say is the EMU fudge. Few doubt that the monetary union will take place. But increasingly it is being said that the choice before Europe8217;s finance ministers is a stark one between starting EMU on time with a weaker than planned currency or simply delaying the project.