PROGRESS towards monetary union would be "a bumpy road", Mr Alexandre Lamfalussy, head of the European Monetary Institute (EMI), warned yesterday. But there was a "reasonably high probability" that it could start on time in January 1999.

"In economic matters there are no certainties," said the president of the forerunner of the planned European central bank when asked if he believed the date could be met.

Mr Lamfalussy was speaking after the launch of the second annual report by the EMI, set up in 1994 to prepare for EMU and monitor countries' performances in meeting the Maastricht convergence criteria.

His hopes EMU could start on schedule contrast with the growing view in political, banking and industrial circles that postponement might be necessary as countries grapple with economic and budgetary problems.

Apart from Luxembourg, no European Union member meets all the criteria, although the final assessment will be taken on the basis of 1997 economic data in two years' time.

In the report, Mr Lamfalussy cited progress on a common monetary policy, payments systems and arrangements for switching to the single currency. But he repeated the EMI's view that countries still needed to do more, especially in curbing fiscal policies, to meet the criteria.

The report stressed governments still had much to do. Last year's overall public sector deficit in the EU was 4.7 per cent of GDP and most states were well above the Maastricht ceiling of 3 per cent. Ireland was one of only three states with deficits below the ceiling.

The EMI said action to bring budgets under control should be taken at once.

The report said only firm action would allow public finances to take advantage of an expected growth revival and meet the convergence criteria. "The year 1996 will be of crucial importance in paving the way towards monetary union."

Mr Lamfalussy said the EMI was on schedule to specify, by the end of the year, the regulatory and organisational framework for the central banking system will run EMU's monetary policy.

One important issue he hoped would be solved by the autumn was the exchange rate relationship between countries in EMU and those outside. An early solution was necessary to safeguard Europe's single market and he hoped progress could be made at this month's informal meeting of EU finance ministers and central bank governors in Italy.