Schroder cannot afford a botched summit

All the EU leaders agree that the outcome of the Berlin summit could be crucial for the future of Europe, but the stakes are higher for the German Chancellor, Mr Gerhard Schroder, than for any of his counterparts. Two weeks after the resignation of Finance Minister Mr Oskar Lafontaine and a week after the European Commission stepped down en masse, a failed summit in Berlin would be a disaster for Mr Schroder.

Only a few weeks ago, the Chancellor was warning other EU leaders that Germany was no longer willing to pay for Europe's compromises. Bonn's net contribution to the Brussels budget had to be cut and poorer countries such as Ireland, Spain and Portugal would have to bear a bigger share of the cost of running the EU.

By last night, most German officials were admitting privately that Bonn will be pleased if its budget contribution remains stable and starts to reduce at some time in the future. The Chancellor's tour of European capitals last week convinced him that an agreement on Agenda 2000 is possible but that it may be expensive.

Mr Schroder's calculation is that failure to agree would prove more expensive - both for Europe's future and his own political career. He fears that the financial markets would interpret a botched summit in Berlin as a sign that, following the resignation of the Commission, Europe is rudderless.

A sharp, sustained fall in the value of the euro could force the European Central Bank (ECB) to raise interest rates, a move that would strangle economic growth and plunge Germany into recession.

Mr Schroder's political career depends on his success in cutting Germany's dole queues and he is willing to subordinate all other policy goals to this end.

Apart from Agenda 2000, the summit will be dominated by the selection of a new Commission president and overshadowed by the looming war in Kosovo. Germany is not officially backing any candidate to succeed Mr Jacques Santer but the Chancellor is expected to support the nomination of the former Italian prime minister Mr Romano Prodi.

Mr Prodi's chief disadvantage from a German perspective is the fact that he is not a member of a socialist party and is perceived as a technocratic centrist. And, although he is a distinguished economist, Mr Prodi is not held in high regard by the ECB president, Mr Wim Duisenberg, who regards some of the Italian's proposals for the European economy as dangerously inflationary.