Germany admits flexibility over Maastricht terms

IT was the truth that dared not speak its name. The admission by the German Minister for Finance, Mr Waigel, that the Maastricht Treaty's provision for flexible interpretation of the deficit criterion may have to be applied to Germany appears like a heresy from a man who has preached discipline to the rest of Europe.

But in making his dramatic announcement he was only be confirming, what senior German officials and finance officials from most member states have believed for some time. As Mr Waigel made clear to journalists it has been clear for some time that the cost of not launching the single currency on time would be penal to German industry because of the consequent upward pressure on the deutschmark.

Mr Waigel, chatting informally to journalists, was asked if he regretted having nailed himself to the cross of strict adherence to the 3 per cent limit. "I have no intention of being nailed to the cross of 3 per cent," he said.

"When I said (at Verona) `3 per cent is 3 per cent', I did not say 3.0 per cent is 3.0 per cent. I do not want to accentuate the negative, but the euro is not a thing we can put aside.

"If there is a problem with the euro there will be a big movement into the deutschmark and that will be a serious problem for the German economy and exporters."

Apart from the Bonn Government's own economists, most of the country's independent analysts have been predicting for months that the figures simply did not add up.

The question was simple and increasingly bluntly asked was Germany going to exclude itself by virtue of its failure to reach an arbitrary figure - why not 3.5 per cent? Or would it make the case that the heavy costs of unification, were precisely the sort envisaged by the drafters of the treaty, exceptional and temporary?

Political observers of Germany have been in little doubt about the answer for some time. The Chancellor has staked his personal reputation on monetary union and has made clear that this is as much a political as economic project. The political will was there.

What has held back the Germans until now was the fear that any sign of flexibility on their part would open the door to others most specifically the Italians - to make the case for even greater flexibility in circumstances that many believe are not exceptional.

Mr Waigel's comments are thus likely to produce mixed reactions - some will see them as a welcome political commitment to the launch of the single currency, a move that may help ease the speculation about postponement that was likely otherwise to thrive.

Others, though not those who know Mr Waigel, will no doubt see them as evidence that the Germans are going soft and that it is a harbinger of a worker euro.