WITH a slight upward revision of its growth forecasts, the European Commission has predicted that at least 12 EU countries, including Ireland, would meet the key Maastricht government deficit target of 3 per cent by the end of next year.
But, in a separate report, the Frankfurt based European Monetary Institute (EMI) has warned that too many countries are dragging their heels on getting their public finances in order for the planned 1999 introduction of the euro and has said that most currently did not make the grade for monetary union.
The EMI said that only four countries - Ireland, Denmark, Luxembourg and the Netherlands - might have debt/GDP ratios in 1996 of less than the 3 per cent required for EMU.
On the price stability criterion for EMU membership, the EMI said that, at the end of September 1996, 10 countries, including Ireland, fulfilled the criterion of a maximum inflation rate of 2.6 per cent.
The Commission, in its autumn economic forecasts published yesterday, expects growth to increase from a likely 1.6 per cent this year to 2.6 per cent in 1997 and 2.8 per cent in 1998. It predicts the creation of 2.3 million new jobs in the same period, though it warns that unemployment will not fall substantially because of an annual 0.5 per cent increase in the labour market and 0.2 per cent increase in productivity.
The Commission predicts that all the member states, with the exception of Britain, Greece, and Italy, will meet the key 3 per cent deficit requirement for participation in the launch of the single currency. The decision on initial participants will be taken in early 1998 on the basis of the out turn in 1997.
The Commissioner for Economic Affairs, Mr Yves Thibault de Silguy, made clear that Britain's projected figure of 3.5 per cent was potentially still compatible with meeting the target as it was based on the British financial rather than calendar year - a half per cent difference between the two figures could be expected. Britain had also not yet indicated what budget measures it would take next year, while the bulk of the rest of the figures, Ireland excepted, are based on published budget data.
Mr de Silguy said that it was clear that the rebound in the European economy was soundly based on good fundamentals. Figures for external trade, private consumption, profitability and investment all show upward trends, supported, he said, by real reductions in interest rates.
The report predicts that 14 countries will meet the Maastricht single currency criteria on inflation and long term interest rates, and adds that 11 are currently participating in the Exchange Rate Mechanism, also a single currency requirement.
But the news is not so clear cut on debt. While the outstanding stock of government debt in most countries is expected to remain above the reference value of 60 per cent, the report argues that in many cases it is on a downward trend and in some countries will come down further when planned privatisations are realised.
Mr de Silguy warned, however, against attempts to extrapolate such figures into 12 or 13 definite candidates for the launch of the single currency. Any decision, he said, would be based not simply on the figures but an assessment by the EMI of the state's ability to continue deficit reductions.
That meant that any one off measures taken this year to meet the 3 per cent target had to be complemented by measures that would have the same effect on deficits on an ongoing basis.
His caveat is of particular significance to France, Italy, Spain and Portugal, where special measures, such as the controversial transfer of France Telecom pension funds into state coffers have put deficits on target on a one off basis.
The report also makes projections for 1998 performance based on a continuation of current policies. In Ireland's case, in predicts GDP growth at 5.2 per cent, down from 5.8 per cent in 1997, and an increase of 1.7 per cent in employment (up 2.5 per cent in 1997). Unemployment is set to fall from 12.5 per cent in 1996 to 11.5 per cent in 1998, Government net borrowing from 1.5 per cent of GDP to 0.5 per cent in the same period, and the national debt from 74.7 per cent to 64.5 per cent of GDP.
A strong contributory factor in the overall figures was an upward revision in the growth predicted in Germany this year from 0.5 per cent to 1.4 per cent. But Italy's growth was revised downwards to 0.8 per cent because of the appreciation of the lira and the effects of the process of stabilisation.
The Commission yesterday agreed to publish its report on the effects of its cohesion policies on poorer EU countries. The report, whose details were published in the Irish Times last week, no longer makes recommendations for the post 1999 budget, following concerns expressed by several commissioners that it could prejudge what is expected to be a wide ranging debate on the issue.
