MONETARY Union, the most ambitious economic project ever undertaken in Europe, is now clouded in uncertainty The master plan under which all participating European countries would use the same currencies and have uniform interest rates is threatening to unravel.

Political upheavals in Europe, especially in France and Germany, and an increasing sense of unease, have cast a shadow over the 1999 deadline for the vitally important first wave of membership. Who will be in and who will be out is becoming increasingly unclear.

For Ireland, the decision to replace the pound with the euro will be one of the most important decisions taken since the Act of Union. It has major economic and political implication not only for now, but for decades to come.

Across Europe there has been a growing political consensus that monetary union is the way forward. In most countries it is only the far left and the far right who object. In Ireland the debate has been even less vocal than in many other countries.

Monetary union, it is argued, is mainly a political rather than an economic concept. The politics of EMU is currently being driven by Chancellor Helmut Kohl, although the motivations are based in history.

The main political imperative is to link France and Germany irrevocably together: for many, monetary union is seen as a necessary forerunner to full political union. The paradox is that while the project was always economically risky, political problems are now the threat to the entire project.

JUST a few weeks ago the French government led by Mr Alain Juppe was committed to doing whatever was needed to qualify for monetary union. Now everybody is watching the new French administration.

And the one heavyweight fighter for monetary union remains Chancellor Kohl. It is no exaggeration to say that the success or failure of the project now relies to a large extent on the persuasiveness and political weight of Europe's elder statesman.

Right now, Dr Kohl and the other leaders face many hurdles. A key problem is that the criteria to judge which countries are to be allowed to join the single currency were laid down at a time of economic prosperity.

Nevertheless, the political consensus is such that most European countries have been scrambling over themselves in a bid to meet the targets. France and Italy, in particular, have been accused of cooking the books in their attempts to join. Germany with its tradition of fiscal conservatism has been vocal in its opposition to these plans.

But then the unthinkable happened. The German government announced a plan to revalue its massive gold reserves. The money would have filled a yawning gap in Germany's debt and deficit positions and qualification would have been automatic.

But the fiercely independent Bundesbank was bitterly opposed. If the Germans were allowed to fridge the books they would have no moral authority to banish countries such as Italy which engaged in similar practices. The German central bank came out against the plan in such strong terms that the government was forced to back down.

Many believe that this extraordinary spectacle of the German government and Bundesbank arguing in public only underlines the political commitment to monetary union. However, this view may prove optimistic.

In effect, the German government is now back to square one with a DM18 billion hole in its revenue. Chancellor Kohl faces a choice between raising taxes or cutting spending. Tax rises are likely to be ruled out by the junior coalition partner, and some analysts believe that if Dr Kohl tries to go down this route he could be facing an election this year.

At the same time the change of government in France, which gave the Socialists a sweeping mandate to change economic policy, could have even more farreaching consequences.

The French left has been arguing that they need a broadbased monetary union including Spain and Italy, a looser interpretation of the criteria, a renegotiation of the Stability Pact and more political influence on the European Central Bank.

Any one of these proposals would The anathema to the Germans. If the Socialists seriously stick to them, there must be a risk that the Bundesbank will give evidence to any challenge against the proposal to the German Constitutional Court which may be asked to rule on whether Germany will enter.

It is unlikely that the new French leader, Lionel Jospin, will back down on the renegotiation of the Stability Pact from which he made huge political capital during the campaign.

The picture in the rest of Europe is just as clouded. The so called Club Med countries of Italy, Spain and Portugal, which would not have been on many people's lists for early participation just two years ago, are now doing very well and may qualify. The governments in these countries are anxious to qualify and have been implementing stringent cutbacks in an attempt to make the grade.

The Northern countries are more divided. Finland is determined to be in the first wave, seeing an opportunity to further integrate itself into mainland Europe and cast off some of the Russian shadow which many Finns are still aware of.

Sweden, on the other hand, just this week has come out against joining, while Norway ruled out the idea several years ago. Britain and Denmark have negotiated opt outs and few expect either to participate in the first wave.

So far the consensus is that monetary union will go ahead but with 11 countries rather than five or six, and the euro will be "softer" or not as strong against the other major currencies such as the dollar and yen. If this is the case it will mean that the advantage for Ireland in joining may be slightly diminished.

While exporters would benefit, a softer currency implies that interest rates will have to be higher to compete with the dollar and the yen. However, it is very unlikely rates will rise above current levels.

MONETARY union, however, means more than just political and economic jockeying and interest rates. The move to a single currency will have huge implications for every Irish citizen.

All shops, bars and restaurants will have to display prices in both pounds and euros for the first three years of the project. Cheque books, tax returns and credit cards will be available in either currency. By 2002 everything will be denominated in euros and the pound will no longer be legal tender.

At this stage there will be no reason to change money when going away on holiday; businesses will benefit from reduced transaction costs; and insurance and banking services will be available from all over the Continent. Mortgages from German banks will be possible as will home insurance from French insurance companies. The increased competition and the entry of more global players should lead to lower prices in many products.

If monetary union does not happen and the project falls apart the consequences will be almost as dramatic. Interest rates are likely to rise. The pound will rise against a falling sterling, but will weaken against a strengthening, more dominant, deutschmark.

All sectors of the economy will be hit by growing uncertainty as the old assumptions are undermined.