Steady the Buffs and ignore Eurosceptics

STEADY the Buffs! We are going through, it appears, one of those periodic crises of nerves in which ne'er a day passes without dire warnings from the commentators that the single currency launch will have to be postponed.

With the details of the legal framework for the euro, the Stability Pact and the new ERM agreed in Dublin, the next key date for a decision will be the meeting early next year to decide on who qualifies for the front runner group. In the meantime there is plenty of time for speculation and nature abhors a vacuum.

The Financial Times this week reports a growth of scepticism in financial markets, with dealers moving out of holdings in markets like the Italian and Spanish which had been seen as likely to benefit particularly from euro membership. A survey of key investors showed, the paper reported, a shift towards holdings in Germany and currencies like Austria and the Netherlands which traditionally shadow the mark.

But the effect on bond prices has so far been relatively small in comparison with movements last year. And, significantly, clear differences emerged in the survey between British based dealers and those in Europe who are far less sceptical about the launch date for the euro. One London dealer, Julian Jessop of Nikko Europe, the Japanese securities house, argues that "continental investors seem resigned to EMU going ahead. They take the view that it is a political decision."

There is no doubt that much, though not all, of the current wave of scepticism about the launch date is the product of a deliberate campaign, and its reverberations round European capitals, by sections of the British "quality press whose obsessive anti euro campaigning has taken them over the bounds of fair comment into propaganda The patient could be dancing a jig and some of these gentlemen would have you believe him dead and buried.

But the voices out of London are not by any means all negative. Business, largely silent so far, has begun sending out warning signals. Top "British" business leaders like Irishmen Peter Sutherland at Solomon Brothers and Niall FitzGerald, head of Unilever have warned Britain may be missing the boat by staying out and may pay a heavy price.

On Wednesday, the head of BAe, Sir Richard Evans, did the same, expressing the hope that a strong British government after the election will be able to take on the "crazy" Eurosceptical fringe - not the words of people who think the project is terminally ill.

Peter Brennan, IBEC's European director, asks if the speculation about postponement is being fuelled by those who have an interest in the euro's failure. He points to reports from investment banks predicting that the single currency could become a reserve currency in which up to one third of global business is conducted by the year 2002. "All this implies a significant shift out of dollars. Has this anything to do with the current wave of speculation?"

But the latest jitters are also to do with real concerns that Germany's record January unemployment figures of 4.6 million make the latest Bonn estimates for the country's deficit this year, revised up from 2.6 to 2.9 per cent of GNP, unrealistic. Chancellor Kohl, who has staked his sliding personal reputation on the launch of the euro, is seen to be desperately trying to cobble together with the opposition an agreement on both structural reforms of German taxation and spending and immediate cuts that will put the economy back on course.

Press speculation that he will be unable to secure agreement mirrors that of last year when Bonn was also trying to secure opposition backing for a difficult adjustment to the budget. They succeeded, and this year senior German industry sources believe they will do so again by Easter.

Germany's efforts will be helped by the rise in the value of the dollar. That could put an additional 0.3 per cent on to projected EU growth of 2.3 per cent this year, according to the Economic Affairs Commissioner, Mr Yves Thibault de Silguy, this week.

But above all there is a perception here in Brussels that many commentators are missing the wood for the trees. Firstly, despite doubts about whether all can make the budget deficit targets of three per cent, there is real evidence of substantial convergence of key elements of European economies, the rock on which a successful single currency will be built.

And, most importantly, there is a growing certainty that even if Germany only makes 3.2 or 3.3 on its deficit this year Bonn will not pull back from launching EMU on time. Apart from any other consideration, as the bond markets are showing, the alternative to the euro is likely to be very heavy demand for the mark. And that is a nightmare prospect for Germany's exporters.

We have passed the point of no return. The treaty has enough flexibility built into it to allow, contrary to popular belief, a flexible interpretation of the criteria, even the deficit criterion, if there is a political will. And there is political will in abundance, although Germany cannot admit it openly now.

(Some here are saying that Germany's determination to reach the 3 per cent is more to do with concern to preserve the moral high ground that will allow it to keep Italy out of the first group.)

What I'm saying is that, although nothing in this world is guaranteed, gentle reader do not be thrown by the voices of doom emanating from London - or by the BBC's deeply Eurosceptical Bonn correspondent, Jonathan Charles. Steady the Buffs. Keep your nerve. It'll be all right on the night. Probably.