GERMANY remains convinced France is committed to reining in budgets in time for European monetary union and can see no reason for a sudden outbreak of panic in financial markets, a Bonn source said yesterday.
"France is making all the efforts it can to get its budgets in trim," the source, who is familiar with the German government's views on monetary union, said. "I do not see any good reason to assume that officials are discussing a delay."
A rash of rumours that Germany and France were set to postpone, the January 1st, 1999, launch of the single currency broke out on Tuesday and lingered in otherwise quiet summer markets yesterday, despite denials from both Bonn and Paris.
Assurances from France that it would freeze 1997 spending at this year's level, cut taxes and yet achieve the EMU target of limiting public budget deficits to three percent of gross domestic product gave only limited help to the French franc.
The postponement talk had pushed the franc to a four month low of Ffr3.4116 against the German currency on Tuesday, reviving memories of crises in Europe's monetary system in the summers of 1992 and 1993.
The source said that with all technical preparations for monetary union running on schedule, it was clear that any EMU worries would be focused on whether key countries could meet the economic entry conditions by the 1997 deadline.
Among the various entry criteria, the requirement for public deficits to be slashed to 3 per cent of GDP is the main hurdle for both Germany and France - the two countries all agree must be in EMU from the start.
A smooth transition to the Euro single currency is seen as essential for Germany, which would have the most to lose if the project were suddenly and unexpectedly to collapse or be delayed.
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