Mark Tran in Washington and Larry Elliott
THE world’s financial markets could be plunged into chaos if European Monetary Union (EMU) fails to go ahead on time in 1999, the International Monetary Fund (IMF) warned this week.
With the French, German and Italian governments battling to get their economies in shape for the single currency project, the IMF said there could be dire consequences in not sticking to the agreed schedule.
The warning came as finance ministers from the G7 industrialised countries met in Washington to discuss the world economy, in particular the recent sharp rise in the United States dollar.
Massimo Russo, adviser to IMF managing director, Michel Camdessus, said: “We believe a delay in stage three [introduction of single currency] would lead to substantial dangers.”
A delay, he added, could lead to the project being shelved for some time, making it hard for countries to continue their efforts towards qualifying for EMU and causing chaos on financial markets.
It must be decided by the spring of 1998 which members of the European Union meet the initial criteria for entry to EMU. But German Finance Minister Theo Waigel insisted that the scheduled start of the single currency should not be set in stone.
Waigel argued that strict fulfilment of the Maastricht criteria had to take precedence over the timetable for the introduction of the euro, although he emphasised that Germany was determined to meet the Maastricht target of bringing the budget deficit to 3% of gross domestic product (GDP) in 1997.
In its World Economic Outlook, the IMF forecasts that for this year Germany, France, Italy and Britain will all miss the target. Germany, France and Italy are projected to have a budget deficit of 3,3% of GDP, while Britain’s figure could be 3,1%.
But the IMF acknowledges that its figures do not take into account measures yet to be announced. Germany is likely to further fiscal tightening, while Italy insists it will be part of the first wave, despite a European Commission report saying it would be one of two nations not to qualify.