All ready and waiting for the monetary union invitations to go out

Date: 23/10/1997

THE most nail-biting time for a host is the calm just before the party begins. The hall is booked, the food and drink in place and even the nostalgia band is up on stage with equipment tested.

Now there is nothing to do but twiddle thumbs, wait for the guests to arrive and hope nothing crucial has been overlooked.

It is this very calm which has descended over the architects of the single currency as 'decision day' approaches in six months' time. This time two years ago, they had only just formulated a scenario for the transition to the euro and had not yet landed on such a bland name for the currency.

Today, whatever happens to EMU, national monetary officials as well as those at the European Commission and the European Monetary Institute (EMI) can be justifiably proud of the work they have done.

Nobody could say that the euro was stillborn through lack of preparation. Indeed, Economics Commissioner Yves-Thibault de Silguy has so little to do that he has long since turned his attention to life after 1 January 1999.

For the past six months, he has spent much of his time proselytising for the euro-cause and explaining to Asians and Americans what the arrival of this new monetary Goliath will mean for their financial markets.

Nothing has been overlooked, the policy-makers hope, and every gap in preparation has been brought to their attention by market participants and consumer groups.

Regulations were agreed at the Amsterdam summit in June to establish the true legal status of the euro, a fact since recognised in the US states of Illinois and New York, where the new currency will be honoured in existing contracts.

Even the notes and coins have been designed - unlike those in the US - to be recognised by blind and partially-sighted people.

Now, the Commission and the EMI must sit on their hands and wait for the most intense political horse-trading the Communities have ever seen.

For a while, it looked as though it was going to be easy. If EMU was going ahead, only the northern states with a long history of 'stability policies' (locking their currencies with the deutschemark and steadily reducing their budget deficits as a proportion of national income) were on course for the first wave of membership.

Two years ago, German Finance Minister Theo Waigel was able to state categorically - albeit undiplomatically - that Italy had little chance of joining the first EMU entrants.

This suited him and the Bundesbank, since fragile German acceptance of the euro-project depended largely on keeping out the southern Europeans, at least for the first couple of years until EMU had bedded down.

The budgetary performance of Romano Prodi's Olive Tree coalition has rather put them on the spot. Prodi has managed to swing hard-line Communists behind his latest round of tax increases and spending cuts, and has probably ensured that not only will the budget deficit slip below 3&percent; of gross domestic product this year but it will also continue on a downward path into 1998.

Just six months ago, Bundesbank President Hans Tietmeyer left a trail of hints at the Noordwijk meeting of finance ministers regarding a new market-led strategy for dissuading Italy from premature candidacy.

After all, with public debt worth 124&percent; or, to put it in perspective, 1.2 trillion ecu, Italy only needed a modestly negative remark from a top German policy-maker to add billions to the government's annual debt-servicing bill.

Even this is not really necessary. Italy is an exception. The country is most definitely a Giovanni-come-lately to the idea of stability policies.

Austria, the Netherlands and Belgium have virtually locked their currencies to the deutschemark standard for at least the past 15 years while France, save for the mid-summer madness of 1993, has sustained a stable mark-franc rate and outperformed Germany on inflation for a decade.

True, the Italians have been paying for the sins of their fathers. But as recently as last year, they were still using blatant accounting trickery to meet the 3&percent; target, in the form of a 'Euro-tax', an instrument far more likely to undermine the idea of sustainable convergence than Waigel's attempts to revalue German gold reserves.