31 January – 6 February World Economic Forum

Date: 08/02/1996

ECONOMIC slowdown and its effects on the prospects for a single currency in Europe dominated discussions at the World Economic Forum in Davos, Switzerland.

BUNDESBANK President Hans Tietmeyer said 1996 would be the critical year in determining whether the Euro was created on schedule in January 1999. While there was certainly a cyclical slowdown in the world economy at the moment, he told the meeting, growth was still on an upward path in the EU and the US. This, along with efforts to reduce budget deficits, would ensure monetary union started on time, rather than any efforts to relax the 'convergence criteria', he said. That would let countries into the Euro bloc that were not ready for it.

GERMANY'S central banker made it clear that achieving integration at all costs was not on his agenda. “Integration is important, there is no doubt about that, but it is more important to increase flexibility and be more competitive,” he said. He repeated the assertion that economic growth alone would not solve the problem of unemployment in Europe. Reform of wage-setting, labour relations and social policy was also needed, as well as measures to tackle the many disincentives to work in the welfare state.

FRANCE would be ready to join the monetary union on time, said Bank of France President Jean-Claude Trichet. He said the French economy could sustain annual growth of 3&percent; without stoking up inflation, stressing this should be driven by private- rather than public-sector investment. But Labour Minister Jacques Barrot admitted that French unemployment was set to rise even higher than the 11.7&percent; registered in December. Wolfgang Schäuble, an ally of Chancellor Helmut Kohl and chairman of the parliamentary group of Germany's Christian Democrats, admitted that Bonn was “thinking about” the possibility of a delay to the creation of the monetary union. Adding that he was opposed to a postponement, he warned that the single market could be destroyed by different currencies. This view was supported by European Commission President Jacques Santer, who confessed he was “unsure the common market would survive the blow”. Belgian Prime Minister Jean-Luc Dehaene called for a “dynamic of integration” warning that without it, “you will have the reverse: a dynamic of disintegration”.

TO address these fears, Economics Commissioner Yves-Thibault de Silguy told the forum that the Commission would present its proposals on ensuring fiscal discipline in the monetary union by early April. This will take on board the ideas of German Finance Minister Theo Waigel and his Stability Pact. A second proposal to 'sell' the Euro to the European public will be finalised in the spring, de Silguy said.

THE International Monetary Fund gave its backing to economic and monetary union, warning that a delay would set back exchange rate stability for a long time. Top IMF official Stanley Fischer said: “If EMU succeeds, it would yield much improvement for international currency rate stability.”