Five states set for EMU plaudits

Date: 06/03/1997

By Tim Jones

THE European Commission is poised to remove Finland and the Netherlands from its 'black list' of big spenders as its annual scrutiny of national budgetary performance gets under way.

Over the past week, member states have been handing in their 1996 budget figures to the Commission. Already, the Dutch and the Finns look set to receive a thumbs-up for hacking away at public spending when Economic Commissioner Yves-Thibault de Silguy presents his recommendations to colleagues towards the end of April.

If finance ministers agree with the Commission, this will bring the number of countries which have satisfied the tough criteria for joining a single currency bloc to five - Luxembourg, Ireland and Denmark have already qualified.

All other member states are certain to be censured under the annual 'excessive deficit procedure', with only a year to go until heads of state decide which countries are ready to kick off the euro in January 1999.

Indeed, this year's Commission analysis will be crucial since it is a dress rehearsal for next spring's examination, on which prime ministers will base their final decision.

The investigation is carried out under Article 104c of the Maastricht Treaty, which calls on the Commission to monitor budgetary performance within member states for any sign of “gross errors”.

The budget deficit should be close to 3&percent; of gross domestic product and public debt should be falling towards 60&percent; of GDP “at a satisfactory pace”.

The figures submitted by the Finnish government show that growth accelerated in the final six months of last year. Tax revenues increased while, at the same time, public spending fell as a proportion of national income. In 1996, the budget deficit was 2.6&percent; of GDP and it is expected to fall to 1.9&percent; by the end of this year.

With Finnish inflation well under control at 0.6&percent; last year, the only question mark hanging over the country's EMU qualification regards the size of its public debt. This dropped to 58.8&percent; of GDP this year and remains below the Maastricht threshold, but the government expects it to rise to 59.4&percent; by the end of 1997 - dangerously close to the 60&percent; ceiling if other countries decide to interpret the rules strictly.

In the past two years, German Finance Minister Theo Waigel has registered his opposition to a lax interpretation of the debt rules.

This followed Commission recommendations that Ireland, whose debt topped 80&percent; of GDP but was falling fast, should be excused. Even Denmark, which cut its debt stock by 8&percent; over two years and reduced its deficit to 1.5&percent; of GDP, failed to win Waigel's praise.

This could also prove a problem for the Dutch government, since the figures filed with De Silguy's office this week show it is making slow progress on reducing public debt as a proportion of national income.

Although the budget deficit was reduced to 2.2&percent; last year, the public debt ratio will remain close to 79&percent; - slightly down from 1995 but higher than the figure achieved a year earlier.

In a dry run for next year's make-or-break assessment, De Silguy is trying to carry out the work as quickly as possible so that when it comes to the real thing, the decision to go ahead with EMU can be taken in April 1998.