THE European Commission has sent a strong signal to the markets that the euro will start on time with its spring economic forecasts suggesting 13 out of 15 member states will meet the key 3 per cent Maastricht deficit target this year and sustain that performance in 1998. Five countries - Germany, France, Spain, Portugal, and Austria - hit the 3 per cent exactly, leaving no room for leeway.
But the forecasts were not good news for Italy. Although its deficit is predicted to fall sharply to 3.2 per cent this year from 6.7 per cent in 1996, the Commission's prediction for 1998 is for 3.9 per cent. Not surprisingly, Greece will also not meet the criteria.
The International Monetary Fund, however, said that France and Germany, as well as Italy, were heading for a 3.3 per cent deficit/GDP ratio without further budget action.
The Commission also revised upwards its growth forecast for Ireland to 7.2 per cent in 1997 and 6.6 per cent in 1998, almost twice the best performance expected in any other member state. However the report says that the Government should use the current period of strong growth to intensify its efforts to control public spending.
The forecasts confirm a general upturn in the European economy courtesy of a significant upswing in exports on the back of a strong dollar. Growth in the 15 is expected to hit 2.4 per cent this year, and 2.8 per cent next.
Italy's remarkable but painful success this year is thus unlikely to prove acceptable without anew long term measures to pass the crucial "sustainability" test, the Commissioner for Economic Affairs, Mr Yves Thibault de Silguy, made clear yesterday. (The Commission's projections for 1998 are based on "a continuation of current policies".)
Commission sources confirmed that the Italian Prime Minister, Mr Romano Prodi, rang the Commission president, Mr Jacques Santer, in recent days to persuade him to revise down the Italian estimate. In the end all he got was a footnote added to the figures saying "this may become 3 per cent of GDP for 997 if the measures already taken have full effectiveness and, if necessary, additional measures are introduced".
The news on government debt level is not so good. Although the overall debt of the 15 is set to decline from 73.2 per cent of GDP to 72.3 per cent in 1998, it is still 12 percentage points above the Maastricht 60 per cent target.
In the same period, Ireland's debt is set to fall from 72.8 per cent of GDP to 64.3 per cent (it was 101.5 per cent in 1985).
Based on their performance in 1996, five countries are now not cited as having excessive deficits - Ireland, Luxembourg, Denmark, the Netherlands, and Finland, the latter two joining the select list for the first time.
Responding to a question from Mr Pat Cox MEP (Ind, Munster), Mr de Silguy made clear that any delay in the EMU timetable was now practically as well as legally impossible.
"The message for Irish business is totally clear," Mr Cox said later. "EMU will happen on time. Ireland will qualify to join. Ireland will join."
