The likelihood of Emu starting on time in 1999 has increased during the past few weeks. But recent events suggest it is unlikely to be the "wide" Emu expected by the financial marketsby David Marsh / November 20, 1997 / Leave a comment
A timely acceleration of European economic growth and a setback for the German opposition in local elections have lifted Helmut Kohl?s hopes of seeing economic and monetary union begin on time in 1999. On the other hand, much could still go wrong on the road to the euro. The recent rise in German interest rates and the fall of the Italian government of Romano Prodi place significant hurdles ahead of the “wide” Emu that the financial markets have been assuming will start in 1999.
The German interest rate rise was the first in more than five years. The Bundesbank demonstrated that its frequent warnings over accelerating inflation were not mere bluff, and sent a clear signal that participation in Emu will be limited to countries that have substantially converged with Germany. This condition implicitly rules out Italy, gripped as it is by political wrangling over a Maastricht-induced austerity programme for 1998. The signal will not be liked by the French government, which has always favoured a wider Emu. The alternative?an enlarged Deutschmark bloc?would not give France the geopolitical parity with Germany that it has long desired.
The chances of Emu starting on time have certainly risen since the early summer, when miscalculations in Bonn and Paris made it seem as if France and Germany were campaigning to scupper it. However, the Bundesbank?s action on interest rates and the problems facing Italy mean that, by my calculation, there is still only a 60 per cent chance of Emu going ahead as scheduled.
For Tony Blair?s government, preparing to take over the EU presidency in the first half of next year?the crucial period of Emu decision-making?the stakes are finely balanced. Blair will want to give some signal of a warmer attitude to Emu both out of political conviction and in order to maximise Britain?s leverage during its EU presidency. But he will also want to take into account the many uncertainties that still surround the project and the opinion polls indicating that more than 60 per cent of the British electorate are opposed to a single currency.
Whether or not Emu will be a success remains, as ever, mired in doubt. A project designed to make the economic environment more predictable has, perhaps unavoidably, become a powerful source of continent-wide uncertainty.
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