Prague, 7 November 1996 (RFE/RL) -- Two contradictory reports issued yesterday by European Union institutions have reinforced fears that the EU's drive to create a single currency in 1999 is fired more by political considerations than the strict economic standards the Union has set for itself.
One report, written by the EU's Executive Commission in Brussels, predicted that at least 12 of the group's 15 member states would get their financial books in order and meet those criteria by next year. The Commission's optimistic assessment was based on estimates provided by member governments and reflected their views. In recent weeks, several EU governments have resorted to what some analysts call "creative accounting" to present 1997 budgets that, on paper at least, meet the requirements for joining the European Monetary Union (EMU) in 26 months' time.
The other report was issued by the Frankfurt-based European Monetary Institute (EMI), the forerunner of a future EU central bank. Reflecting what analysts call the more "realistic" views of central bank governors, the EMI criticized national governments for running excessive budget deficits and demanded more rigor. In its view, "a majority of member states do not fulfill the necessary conditions for the adoption of a single currency." It said that only four EU members --Denmark, Ireland, Luxembourg and the Netherlands -- seem likely to meet the most exacting EMU requirement --that their budget deficits not exceed three percent of their gross national products. Today, the EMI said, only the tiny Duchy of Luxembourg (population: 400,000) meets all the standards.
The criteria for joining the single currency -- to be known as the "Euro" -- were laid down in the 1993 Maastricht Treaty that changed the European Community into a Union. In addition to budget deficits, they cover currency stability as well as rates of public debt, inflation and long-term interest. The treaty also said that the EMI's views should be taken into account in deciding which countries could join the EMU in January 1999. The EMI's final recommendations, based on next year's data, is due early in 1998, just before the Union specifies which members have qualified.
Fears of political, rather than economic, considerations determining qualification were sparked a week ago when the EU Commission speedily approved a French government maneuver to reduce its 1997 budget. Despite objections from several member countries, the Commission endorsed a ruling by Eurostat, the EU's statistics body, that France's plan to move more than 7,000 million dollars from France Telcom's pension fund to the government's ledger was acceptable. Eurostat's director is Yves Franchet, a Frenchman.
So is EU Finance Commissioner Yves-Thibault de Silguy, who yesterday insisted "this was strictly an accounting decision. I don't give (Eurostat) any instructions," he said.
So far, financial markets have been willing to give EU officials and national politicians the benefit of the doubt in their professed optimism about the EMU. But sooner or later, investors will want to see the fine words about fiscal stability supported by real achievements. Britain's respected daily "Financial Times" wrote in an editorial today: "The precise timing and membership of EMU can be fixed by political sleight of hand: Its long-term stability cannot."
The successful, on-time launching of a single currency is important to Central European states that are candidates for EU membership. To date, the Union has failed to agree on necessary internal reforms that will speed up enlargement. If the EU also proves unable to make the Euro credible, that too will delay its expansion to the East.