EMU is dead. The single currency, as set out in the Maastricht Treaty, always carried the seeds of its own destruction, and the events of recent weeks have seen the project unravel.
As yet, the financial markets are still betting on a 1999 start date, with up to 11 participants. But EMU's internal contradictions are now so evident that the only remaining question should be whether monetary union is laid to rest next week in Amsterdam, or whether it limps along towards the end of the year, before Germany finally calls a halt.
Despite heroic attempts by its advocates, the economic case for a broad single currency in Europe has always been shaky. Could economies as diverse as Ireland, Italy, Austria and Finland cope with identical interest rates and currency?
A moment's reflection confirms the notion as nonsensical, and it is ominous that supporters of EMU no longer stress its supposed strengths but emphasise the difficulties of delay or postponement at this late stage. However, to equate the end of EMU with a chaos in currency markets and exchange rates is profoundly to misunderstand financial markets.
Most analysts, when pushed on EMU, shrug their shoulders and say the economic case for the single currency is weak, but the political imperative is such that its completion is inevitable. Certainly, the genesis of the single currency, back in 1990, was overtly political, with the original Franco-German agreement to develop EMU.
To France, it was a chance to escape from Bundesbank control, with Paris having a vote in setting European interest rates. To Germany, and Chancellor Kohl in particular, it was a mechanism to lock Bonn into a tighter political union with its European neighbours.
Unfortunately for him, this involved giving up the deutschmark, Germany's pride and joy which was, and is, a deeply unpopular decision with German voters. So we have a number of incompatibles. To France, the European Central Bank should be under political control, but for Germany, with its tradition of an independent central bank, such an idea is anathema.
To placate German opinion, a number of arbitrary criteria were drawn up in order to limit membership to a core European group and' thereby exclude the "Club Med" of Italy, Spain and Portugal. Yet, paradoxically, the race to meet the criteria, in particular the need to reduce fiscal deficits, resulted in a significant slowdown in European growth, which pushed up unemployment across the EU and put further pressure on governments' finances.
THE impact has been offset to some degree by historically low interest rates, but most people in Europe now associate the single currency with austerity, spending cuts and higher taxes. As a consequence EMU is a deeply unpopular concept: 75 per cent of Germans polled this week want a postponement, and the French electorate rewarded the Paris government's enthusiasm for the' project by sweeping it from office.
So the French government now has a mandate to re-examine the whole issue, particularly the most recent agreement to limit budget deficits in the post-EMU era.
The final irony of the whole sorry saga is that it is Germany itself' which will not meet the criteria.
By abrogating any political authority it had to block Italy's membership, Germany has now opened the door to an 11-member EMU, which will be flatly rejected by the German population at large. Consequently, EMU is dead, despite the rhetoric to the contrary.
We are told that the single currency is a vital and momentous step for Europe: but if so, why should it be held up by a percentage point on government borrowing? Clearly the German insistence on meeting the criterion to the letter suggests another agenda, and one which contemplates a way out via postponement or outright abandonment of monetary union.
What of Ireland if EMU is abandoned? Irish rates may well rise marginally, but only because that should be happening anyway. Mortgage rates will not rise significantly unless the economy warrants it via inflation going out of control.
As for the currency, the net result of postponement might well be a stronger punt: the deutschmark would probably rise, albeit not dramatically given the state of the German economy, which would drag the punt up against sterling.
Financial markets sell currencies only where policy is inconsistent or downright perverse (as in raising interest rates when in a recession), so there is no reason to believe that EMU's demise would lead to catastrophic results for Ireland or anyone else.
So the death of EMU would not be the end of the world, particularly as the alternative, a broad EMU, would be so uncertain as to negate any potential benefits from membership.
