Recession may upset euro, says Kohl

Dr Helmut Kohl has warned that the euro's stability could be threatened by a looming recession and economic mismanagement in Germany.

The former chancellor said there was "no reason for pessimism" before the introduction of notes and coins next month, but said the currency's long-term stability could be damaged if Germany breached the Stability Pact.

"The internal strength of the euro is dependent on Germany doing its homework as regards the national debt and unemployment," said Mr Kohl yesterday at a conference organised by the Christian Democrats, the party he led until 1998.

Last week, the federal government conceded that slowing growth could lead to increased borrowing and push the national debt as high as 2.5 per cent of GDP next year, nearing the Stability Pact ceiling of 3 per cent.

That could push back until 2006 German hopes of balancing its budget and breach the 1995 Stability Pact.

Yesterday, the pact's architect, Dr Theo Waigel, described that possibility as "unacceptable" and something he "never would have thought possible".

Dr Waigel, who served as finance minister under Dr Kohl, warned his successor, Mr Hans Eichel: "Get your hands off our Stability Pact."

He admitted handing down to Mr Eichel a large number of Germany's current economic problems, most significantly the 1,500 billion deutschmark cost of unification in 1989.

But he said the government's botched pension and tax reforms and a refusal to introduce more flexible employment policies meant "Germany is now bringing up the economic rear in Europe".

Mr Waigel said the euro was already on its way to joining the dollar as "the anchor of the world economic system".

Last week, he asked Mr Alan Greenspan, chairman of the US Federal Reserve, his opinion of the euro. Mr Greenspan expressed "tremendous respect" for the euro, "something he said he didn't have five years ago", said Mr Waigel.

The former German finance minister praised Dr Kohl for overcoming an epidemic of "eurosclerosis" to push through European currency unification.

Dr Kohl said the euro's arrival was "a fantastic thing" that would "secure freedom and peace in Europe".

He said the euro would soon develop "from a means of payment into a means of identification, of belonging".

The former chancellor said he believed that Britain would adopt it "within five years".