If EU leaders have learned anything from the experience of the 1992/93 currency crisis, it should be that pretending everything is all right does not make it so. For months now senior political figures across Europe have been making bland utterances committed to meeting the January 1st 1999 deadline for monetary union and saying that their economies would meet the entry criteria. There has been a concerted attempt to try to sweep under the carpet the questions about how many states will meet the criteria and what this means for the single currency project.
Now the crunch is approaching and EU governments have a choice. They can decide to discuss these issues and try to chart a path towards the single currency. Or they can sit back, pretend everything is on course and risk the market turbulence which will inevitably result. In short, what is called for is leadership and active management of the run in to monetary union.
Developments yesterday highlight the key issues. The new French government concedes that its budget deficit this year will not be below the 3 per cent limit set in the Maastricht Treaty. This has increased nervousness in Germany, itself struggling to meet the 3 per cent figure. A senior Bundesbank council member questioned the prospects for monetary union and Mr Edmund Stoiber, the Bavarian premier, again insisted that the 3 per cent limit be strictly applied in deciding who should qualify. Mr Stoiber is a leading member of the junior partner in Dr Kohl's government. But the chancellor himself continues to insist that Germany will meet the criteria and monetary union will proceed on schedule.
Already speculation in the markets about monetary union is intense. But by this Autumn the temperature will have risen yet further. By then it will be clear which states will meet the qualifying rules and which will not. EU governments will be under intense pressure to clarify how the Maastricht rules will be interpreted and the transition to EMU managed.
The first thing that EU governments must do is decide to get themselves off the hook they created when they wrote the 3 per cent deficit target into the Maastricht Treaty. The Treaty is not precise on this point, allowing figures above 3 per cent in certain circumstances.
But what is much more important is the sustainability of budgetary performance. A clear signal needs to be sent that the decision on which states will join monetary union will be based on an assessment of whether a low level of borrowing can be sustained in the long term and not on whether the deficit level of a particular state this year is 2.9 per cent or 3.3 per cent. This very point was made yesterday by the president elect of the European Monetary Institute and thus of the EU Central Bank Mr Wim Duisenberg.
Clarification must also be given as early as possible on some other key issues, including how the rates at which currencies will be locked together will be calculated. And a central problem remains about how to make it politically acceptable for some states to be excluded from the first group moving to monetary union.
There will be much at stake in the coming months, as the deadline for conversion to the single currency draws closer. EU governments now face the challenge of making it happen, and as smoothly as possible.