Bruton ends consultations amid fears that `stability pact' differences could spoil summit

THE TAOISEACH, Mr Bruton, concluded pre-Dublin summit consultations in Paris here yesterday, amid fears that the failure of France and Germany to agree on an economic "stability pact" could spoil the summit on Friday and Saturday.

At the Elysee Palace, Mr Bruton was briefed by President Jacques Chirac on the latter's meeting with the German Chancellor, Dr Helmut Kohl, in Nuremburg.

Although they drew up a letter recommending institutional reforms in the EU, Mr Chirac and Dr Kohl were not able to bridge differences over the stability pact demanded by Germany without which monetary union cannot move forward.

"The President and Chancellor did make some progress on the matter," Mr Bruton said. "But it's not resolved yet." Monetary union and the stability pact will be the first issues discussed at the summit on Friday morning.

Mr Bruton is eager that an 11th hour meeting of European Economics and Finance ministers (Ecofin) at Dublin Castle tomorrow night will achieve a compromise.

The Taoiseach said he was "hopeful", but declined to say if he was optimistic about the Ecofin meeting.

If Germany is to exchange the deutschmark for the new Euro currency, it wants the Euro to be strong. Bonn fears that erratic southern European economies could threaten the Euro's strength. Germany wants stiff financial penalties to be automatic if member countries exceed 3 per cent deficit spending. France and nearly all other EU members oppose automatic penalties.

Different monetary philosophies are at the heart of the problem; France and the southern European countries see exchange rates as a tool to be manipulated for trade advantage. Germans accrue large savings, and they expect their currency to appreciate.

One solution, Mr Bruton said, was for the summit to issue a joint statement. "We are talking about a declaration that would give reassurance that the European currency will be a strong currency and that exceptions (to the deficit spending rule) will not be given easily," he said. If agreement is not reached in Dublin, European markets could suffer.

"There are strong arguments for coming to an agreement before next year. But it is not a requirement or a deadline that it be completed at Dublin," he said.

Member-states agree that a 1.5 per cent fall in GNP and/or four successive quarters of negative growth should exempt an EU country from sanctions under the stability pact.

"Nobody is disagreeing with the figures being in the declaration," the Taoiseach said. "It's what you do with the figures afterwards."

Other Europeans must try to understand Germany's need for reassurance, he said. "The German public have a memory of the 1920s, of hyper-inflation, of a currency that disintegrated. They had to take a wheelbarrow full of money to buy a loaf of bread."

Mr Bruton said he did not put "a great deal of weight" in remarks by the French Foreign Minister, Mr Herve de Charette, that the Irish draft treaty reflected the "mediocrity" of the Inter Governmental Conference (IGC).

The Taoiseach pointed out to Mr Chirac that a French minister had helped to draft the treaty. "I hope Mr de Charette actually read the document before he commented."

Many of the complaints raised by the French foreign minister - as well as recommendations made in the Franco-German letter - were in fact already covered by the Irish draft treaty.

It has been easier for the 15 EU members to agree on fighting drugs, crime and unemployment. These will be the object of joint statements at the summit.

The Taoiseach said the EU presidency has been a "marvellous opportunity" for Ireland. "We will know our way around better in the world," he said. The knowledge and contacts Ireland has gained will serve it both in business and statecraft.

. The British Home Secretary, Mr Michael Howard, said in Bonn yesterday after a meeting with his German counterpart, Mr Manfred Kanther, that Europol - Europe's fledgling police agency - would never acquire the powers of an FBI-style force despite Franco-German efforts to expand its role.