France takes a firm line on EMU

Date: 30/11/1995

THE French government wants to nail down its German counterparts into a monetary union. No backsliding will be allowed.

That was the message to this week's meeting of EU finance ministers from France's Jean Arthuis.

By insisting that a decision is taken on which select group of candidates will be allowed to join a single currency bloc on 1 January 1999 more than a year earlier, Arthuis reflects a recurrent French nightmare that Germany is not quite serious about swapping the deutschemark for a single European currency.

As a result, a meeting that was meant clear up all the remaining obstacles in way of a binding transition scenario for the single currency ended with a handful of questions left unanswered.

The ever-optimistic Economic Commissioner Yves-Thibault de Silguy was unperturbed. “This Council was rich in results,” he said, adding that the 15-16 December Madrid summit would be “well-prepared” to take the final decisions on the changeover blueprint.

Certainly, ministers did reaffirm the tentative accord they reached in September at the informal meeting in Valencia.

Exchange rates will indeed be fixed in 1999 on the basis of a list of countries chosen around a year earlier, banknotes and coins will be introduced three years later, and the existing Ecu basket will be convertible one-for-one into the new European currency.

What ministers could not agree was exactly when to decide on the monetary short-list and whether to convert public debt into the single currency from the moment exchange rates are fixed.

At the heart of both these disputes lie Bonn, with Frankfurt behind it, and Paris.

France wants to be sure that the embryonic European Central Bank will have time to prepare the ground for the fixing of rates and the introduction of a joint monetary policy from January 1999. Leaving the decision on who takes part beyond January 1998 squeezes the timetable.

Germany, on the other hand, wants to be sure that the data used to judge economic performance is the best available and that could mean waiting as late as the spring for a decision.

But Arthuis said: “The priority above all others is 1 January 1999. In December 1997, we will have reliable data and we need a satisfactory time period for the central bank to prepare for 1999.”

Similarly, the French are worried that the German insistence that public debt does not need to be swapped into European currency could take some of the momentum out of the march towards monetary union. “We have got to emphasise the irreversibility of the process at the beginning of stage three and that means converting public debt into the single currency,” said Arthuis.

This issue, along with the name of the currency, will be decided in Madrid.

The only issue that is likely to avoid a dispute will be how the currencies in the monetary union and those outside should live together. Commission and European Monetary Institute papers call for the decision on this question to be taken much closer to the day when the short-list is chosen.