EU predicts seven set for convergence

DESPITE the persistence in Europe of sluggish growth, the European Commission has predicted that seven countries - including Ireland, but not Britain - will meet the Maastricht convergence criteria for debt in time to launch the single currency in 1999.

The other front runners are Germany, France, Denmark, the Netherlands, Luxembourg and Finland, with Austria and Finland poised only 0.1 per cent above the target.

The prediction that the current timetable is "realistic" is made in the Commission's spring economic forecasts for 1996 and 1997, performance in the latter year being the crucial determinant for participation in the "euro" from day one. The decision on who will participate is to be taken as early in 1998 as the compiling of statistics allows.

The figures predict continued, though slower, Gross Domestic Product (GDP growth in the Irish economy at 5.6 per cent in 1996 and 4.9 per cent in 1997.

Ireland, Denmark and Luxembourg are now the only countries already complying with the Maastricht, criteria. Germany yesterday joined the ranks of those cited by the Commission for having an excessive deficit (3.5 per cent of GDP) last year.

The Commission projects that the growth in employment in Ireland will also slow from 2.3 per cent in 1996 to 1.7 per cent in 1997. Unemployment is predicted to fall from current levels of 14.4 per cent to 12.8 per cent in 1997.

In an optimistic assessment, the EU believes that Government borrowing is likely to fall to 1.6 per cent of GDP next year from a projected 2.6 per cent this year. However, last night a Department of Finance spokesman said its view was that the 1997 Commission forecast was too optimistic.

The eagerly awaited report, the first with projections for 1997, is hedged with warnings that the figures for that year are "scenarios" based on the continuation of current policies, notably a series of painful budget cutbacks undertaken by Germany and France.

Yesterday, on a visit to the Commission, Germany's Chancellor, Dr Helmut Kohl, said that there could be no weakening on implementing the criteria agreed at Maastricht or its timetable.

The Commission has on a number of occasions warned of the need to revise growth fore casts downwards. This year, expected growth in the Union will be only 1.5 per cent, but it should rise to 2.4 per cent in 1997. Unemployment EU wide is not however, expected to fall significantly from the current 10.9 per cent.

While gross government, borrowing of the EU states is expected to decline gently to around 3.4 per cent of gross GDP in 1997, the sluggishness is set to push up the gross debt to GDP level by three percentage points to 74.5 per cent in the same period.

The Commissioner for Economic Affairs, Mr Yves Thibault de Silguy, blames the slowdown on the effects of monetary turbulence in March April 1995, some failures in the process of budgetary consolidation and the high crates of interest being charged in late 1994 and early 1995.

The Commissioner's message was of the need to keep on with the general strategy of debt reduction and structural reform of the labour markets.

Six countries are expected to reduce their debt levels to between 3.0 and 3.7 per cent on current policies. Significantly, from an Irish perspective, Britain is one of them, at a likely 3.7 per cent. The report warns that "to respect the convergence programme targets, further action is needed both to compensate for the fiscal slippage in 1995 and an expected less rapid budgetary improvement in the short run, which is partly due to, lower growth than previously predicted".

The prospects for significant tax cuts ahead of the British election next year recede, as does the remote possibility that Britain might join the single currency from the start. Even if a new Labour government wanted to do so it could not, if the Commission's figures are correct.

The choice for Ireland is then starker, than ever to enter without Britain, or to stay out with Britain. If the Minister for Finance, Mr Quinn, has his way, it will be the former.