ECB set to warn EMU Finance Ministers on budgets

Finance ministers from the 11 European Union countries due to launch monetary union in January are expected to get a warning on budgets from European Central Bank president, Mr Wim Duisenberg, when they meet today.

EU monetary sources said the outlook for 1999 budgets and the "stability programmes" setting out budgetary plans for the next three years, which all single currency participants are due to present this autumn, would dominate the meeting.

Ireland, with its booming economy, rising inflation and healthy Exchequer surplus, is among those countries at whom the warning is likely to be directed. Despite pressure to reduce taxes further and to increase public spending in his 1999 budget, the EU would like to see the Minister for Finance run a tight budget policy to try to hold down inflation.

Mr Duisenberg has also indicated that interest rate policy in the euro zone will be set to meet the requirements of the bigger member states such as Germany and France. This means that Irish interest rates will fall sharply before the new single currency is introduced next January. In this context, the onus will be very firmly placed on Irish budgetary policy, rather than monetary policy, to maintain stability.

Mr McCreevy is expected to outline the current state of the Irish economy at today's meeting and to set forth his plans for sustained prudent economic management of it in 1999.

The budgetary issue is seen as a key determinant to whether Economic and Monetary Union is an early success or flop. Without careful co-ordination of budgets, monetary policy alone will have to tackle inflation inside the euro zone - something which may not be appropriate for some economies, leading to political confrontation and a risk of breaking up the Union.

Several officials said the Commission was pushing for tight budgets in a number of countries, notably the Netherlands, while pressuring others, such as France, to maintain budgetary rigour despite expected higher growth.

The Euro-11 meeting was also due to review for the first time a new euro-area data sheet prepared by Commission statisticians. The sheet, containing information on inflation, growth and other indicators, may be published after the meeting, but would not contain new forecasts, an official said.

A request from the Benelux nations for foreign ministry representatives to attend Euro-11 may also be discussed. Some capitals fear this would make it more like the "economic government for Europe" first proposed a decade ago by France.

Euro-11 meetings are currently restricted to the minister of each country plus one official, usually the treasury director, Commission representatives and the chairman of the EU's monetary committee, currently Britain's Sir Nigel Wicks. The ECB president is only invited on an ad hoc basis.

The Euro-11 group will meet before a scheduled meeting of all 15 EU finance ministers - the first "Ecofin" to be held under Austria's presidency of the bloc. Both meetings will be chaired by Austrian Finance Minister Mr Rudolf Edlinger.

Officials said ministers would formally adopt the Broad Economic Policy Guidelines and a pledge to adapt EU VAT legislation to cover trade on the Internet.

The Commission would also formally present its proposal to leave the Central African franc/French franc parity unchanged once EMU starts, and raise the prospect of changing the design of the planned 10 and 50 euro cent coins.