Stephen Bates in Brussels and Larry Elliott in London
FEARS were growing in Brussels, Belgium, this week that Germany’s inability to tackle the costs of its mounting unemployment crisis could scupper the Maastricht timetable and delay the start of monetary union for at least a year.
Despite official protestations that the single currency will happen in January 1999, private scepticism about the readiness of Europe’s biggest economy for the project appeared to be intensifying.
British sources believe that the chances of a 1999 start date are rapidly diminishing, and that the doubts over which countries will qualify justify the wait-and-see approach favoured by both the government and labour.
At a meeting of European Union finance ministers in Brussels this week, Jorgen Stark, the German secretary of state, insisted that the country’s surge in unemployment by more than 500 000 last month could be put down to seasonal factors.
However, the increase took the number of Germans out of work to 4,65-million – the highest level since the 1930s – and has prompted speculation that Germany may not be able to meet the deficit criteria of less than 3% of gross domestic product.
Private figures prepared by German Finance Ministry officials last week estimate that the country’s deficit this year is likely to be nearer 3,5% than the official estimate of 2,9%.
The report is said to urge that tax rises will be necessary, while acknowledging that they will be politically difficult. Stark said this week that a budget freeze on spending would be considered if necessary.
Germany’s Chancellor, Helmut Kohl, has turned the success of monetary union into a personal crusade, but the gloomy economic news has come at a time when public opposition towards the single currency has hardened.
Senior businessmen recently criticised the suggestion that monetary union should include “softer” currencies such as the lira, while Germany’s central bank, the Bundesbank, is implacably opposed to any fudging of the Maastricht terms.
Stark insisted: “Germany will meet the criteria. The 2,9% figure is not in danger. We have taken all possible risks into account.”
Privately, some senior officials working on monetary union believe that Germany has been complacent about unemployment and that the measures it has been taking will show reductions only in the medium term, not as quickly as necessary.
For once Britain’s Finance Minister, Kenneth Clarke, could afford to take an avuncular view of European problems, telling reporters that other member states should follow the British lead in increasing labour market flexibility.
One senior British source said: “The closer we get to 1999, the more attractive delay becomes. If monetary union is a good idea in 1999, it will still be a good idea in 2000.”
However, the possibility of postponement is still publicly rejected by senior EU officials. Yves-Thibault de Silguy, the monetary affairs commissioner, said: “Monetary union must occur on January 1 1999 or we will have to change the treaty.”