Top Germans split over tough stance on EMU

A GERMAN European Commissioner has sharply criticised Bonn's tough stance on meeting entry goals for currency union and said Germany should have an escape clause to squeeze into EMU.

Last week, the German Finance Minister, Mr Theo Waigel, demanded that governments seeking to join the EMU should keep budget deficits to 3 per cent of Gross Domestic Product (GDP).

But in an interview yesterday, Commissioner Ms Monika Wulf Mathies said the Maastricht Treaty was less specific.

If countries recorded slightly higher numbers, this should not derail the project, she said.

Criticising Bonn's "per cent acrobatics", Ms Wulf Mathies told the Berliner Morgenpost newspaper that the official view "no longer had anything in common with economic sense".

Even with a budget deficit of 3.2 per cent, the treaty did not foresee postponing EMU's scheduled launch date of January 1st, 1999, she said.

"The number 3 per cent is not written in the Maastricht Treaty. Currency union is not some numbers lottery but rather a conscious political decision," she said.

Germany has been demanding strict compliance with the targets to protect the credibility of the new euro currency.

But quibbling over exactly what the treaty's 3 per cent reference value means has become a hot topic as Germany struggles to meet its 1997 deficit goal of 2.9 per cent due to high unemployment and fragile growth.

Bonn is holding firm to forecasts that last year's 3.8 per cent deficit can be slashed to 2.9 percent this year but most independent economists see a rate above 3 per cent.

Ms Wulf Mathies said Germany could fulfil this goal without making some sort of accounting detour.

But the commissioner, who was head of Germany's public sector service union OeTV, also urged that Bonn be granted special treatment, taking into consideration the high cost of unification.

European Union finance ministers have already assured Mr Waigel that unification costs would be taken into account when assessing Germany's debt levels for monetary union.

But Bonn has shied away from demanding special attention on the deficit criterion to avoid playing into the hands of some southern nations - notably Italy - which might try to use the same tactic to gain EMU entry, economists have said.

If Germany should fail to meet the stability criteria the treaty would justify an exemption due to exceptional circumstances, Ms Wulf Mathies said.

Ms Wulf Mathies said enough EU member states would fulfil the convergence criteria, saying this would not necessarily mean all criteria would be fulfilled to the decimal point.

Economists feel even Bonn's tough stance might soften slightly this autumn if Chancellor Helmut Kohl, the driving force behind European integration, signals he is willing to tolerate a slight overshooting.

"The government is not going to let EMU collapse," said Mr Stefan Schneider, economist at Banque Paribas in Frankfurt.

On the other hand, the government also left no doubts about its tolerance level. Finance Ministry official Mr Klaus Regling on Tuesday said: "I can't expect Germ many would allow a nation to participate in EMU with a deficit of 3.5 per cent."