EUROPE'S investors are asking this week whether the Socialist victory in France and the political splits inside Chancellor Helmut Kohl's coalition have increased the likelihood of a delay in economic and monetary union. In Germany, a growing number of economists believe that this may be the wrong question. They say the real question is not whether EMU is going to be delayed - most of them think it will not be - but whether it will succeed once it has started.

One of those sceptics is Mr Thomas Mayer, chief German economist of Goldman Sachs in Frankfurt, who thinks EMU is so driven by political considerations that the economics are looking precarious.

Financial markets overwhelmingly assume a "fudge or death" scenario. Mr Kohl's and President Jacques Chirac's dogged political determination to stick to the current timetable makes abandonment of the project at this stage unlikely.

If EMU's death is ruled out for political reasons, then fudge it has to be. But fudge may not necessarily result in a soft euro, or at least not immediately.

It could lead to a nonfunctioning euro, hampered by incompatible business cycles and incompatible sustainable growth rates across the region.

A weak euro may well be the ultimate outcome of a nonfunctioning monetary union, but in the short run the risk is greater that the euro may be too hard for its own good.

This is because an insecure European Central Bank (ECB) could well err on the side of caution initially.

Daring a look to the postEMU world, Mr Mayer says: "The European central bank will pursue monetary policy as if it was dealing with an optimal currency zone.

"It will steer a middle course between hard and soft monetary policies. In that case we will see tension in the labour markets. This tension will manifest itself in higher unemployment in poorer regions, and it may well escalate in a crisis in the labour markets.

"This in turn will increase pressure towards a softer monetary policy and a softer euro.

It is the fear of EMU not working, rather than the simplistic "strong versus weak" or "on time versus delay" argument which is causing concern in Germany. However, the markets still operate on the central assumption that EMU will go ahead on schedule.

Given the uncertainties over the project, financial markets are poring over a proliferation of EMU scenarios.

These include a possible delay of 18 months to two years, which could precede a successful launch, or threaten the entire project.

The markets are also considering a possible "fudge", which allows virtually every EU state, except perhaps Greece and the opt outs, to participate in monetary union in 1999.

The consequence could be a currency that is weaker than the deutschmark has been, because the combined euro area would be economically weaker than Germany.

A grey period lies ahead. There is the troubling political dispute between Mr Kohl's Christian Democratic Union and the Free Democratic party, the junior coalition partner which categorically rejects tax increases to fund the budget gap.

And the government must this week win a no confidence vote against the finance minister, Mr Theo Waigel, and try to smooth the row with the Bundesbank over the gold reserves.

Mr Kohl will need to arrive at some political understanding with Mr Lionel Jospin. Mr Jospin said during the election that he wanted Italy and Spain to join EMU, irrespective of whether they met the criteria; to renegotiate the stability and growth pact, which seeks to reign in deficit spending by future EMU members; and to have a political counter weight to the independent European Central Bank.

Each one of these proposals has the potential to horrify the average German citizen - let alone a Bundesbanker.

Ms Alison Cottrell, executive director of Paine Webber, said: "The Socialists' emphasis on employment and on a broad EMU from the start, may pose an insurmountable obstacle to German participation in 1999. The Bundesbank's response to such a proposal would make its protests over gold reserves look like a love letter."

The events of the last week may not necessarily have buried the project, but they have greatly increased the risks associated with EMU at the expense of the opportunities.

Once this perception prevails, the timetable, and possibly the project itself, could be at risk.