Kohl to face attack over stability pact

Date: 14/12/1995

By Tim Jones

THE smooth ride which Germany's plan for a stability pact to accompany economic and monetary union has experienced to date will end at this weekend's Madrid summit.

So far, prime ministers have indulged only in coded criticism of the proposals Chancellor Helmut Kohl will present to the summit as part of the programme for getting a single currency up and running by 1999.

But some are expected to launch a direct attack on the plan in Madrid, while more sceptical EU leaders may argue the issue is largely academic at a time when the whole monetary union project is under threat on the streets of Paris.

At the centre of controversy is the German proposal for a Stability Council, made up of an elite group of EU finance ministers. It would include only members of the single currency bloc, as well as having its own voting procedures and the power to punish member states which exceed the pact's budgetary targets.

The Benelux summit earlier this month welcomed the idea of a pact to enforce budgetary discipline in a limited-membership single currency bloc, but warned that this should not lead to the creation of new institutions to challenge the role of established Union bodies.

Economics Commissioner Yves-Thibault de Silguy has been equally positive towards the plan, but warned this week: “Any arrangements that are made should be made as 15. In other words, we should not create a 'fiscal Schengen' limited to a hard-core of countries.”

At the summit, premiers led by Danish Prime Minister Poul Nyrup Rasmussen will bring an end to the coded criticism.

“We understand the spirit of the stability pact,” says a Danish official. “But when it comes to specific proposals like the Stability Council, we are against it. It will be a competitor of the Ecofin Council and most countries realise this and oppose it.”

Even key deutschemark-bloc members like the Netherlands' Premier Wim Kok are sceptical, warning of complicated relationships between institutions if a Stability Council is created along the lines currently proposed.

The Commission is already working on a communautaire proposal for a stability pact designed, above all, to ensure the non-members do not feel excluded.

This will also be the bottom line for the exchange rate relationship between the monetary union 'ins and outs', currently being drawn up by the Commission and the European Monetary Institute in time for the end of 1996.

“If it is necessary to have a first group of countries going ahead, the others should not be left with the impression that they are being left in the cold,” said one official involved in the work.

Work on creating 'EMS II' has only just begun, but already the broad themes are taking shape. The design and maintenance of the system will be largely the responsibility of the central banks, and fluctuation bands may well be kept much wider than the old 2.25&percent; margins of pre-1993.

Above all, different exchange rate relationships will be agreed between those countries ready but unwilling to join the single currency, those willing but not ready, and those with no chance of joining for a long time whether they are willing or not.

Meanwhile, French President Jacques Chirac will arrive in Madrid with his government's plans to slash government spending in pursuit of the Maastricht targets under threat from strikes and demonstrations.

If the government loses this struggle, the single currency will be delayed

As Kohl admitted last week: “I cannot imagine a currency union without France and Germany.”