Madrid confident of passing tests to join first wave of EMU participants

Date: 15/01/1998

By Simon Coss

THESE days, Spanish Prime Minister José María Aznar cheers up his surprised countrymen by going about town humming España va bien - a chorus which will probably become an electoral slogan if Spain gets its ticket to join the euro party on 2 May.

Growing confidence that the Spanish economy will pass the entrance exam for the single curency extends north as well as south. "Spain, thanks to a considerable effort, will probably have lowered its deficit to 3% in 1997 in line with the main criteria that gives access to the third phase of EMU," states a report drawn up by Germany's governing coalition party, the CDU/CSU.

The influential authors of European Monetary Union - the stakes and the responsibility of Germany, Bundestag majority group president Wolfgang Schaüble and the party's international spokesman Karl Lammers, were almost ready to give Spain the green light in mid-September last year.

Then, when the European Commission published its autumn economic forecasts - the last before the decision on the first-wave members is taken based on definitive economic results for 1997 - it blatantly bet on 11 countries taking part in the euro, with the others 'opting out' for political reasons and only Greece left out in the cold on economic grounds.

Suddenly, the general assumption is that there will be a wide euro-zone, despite the misgivings of German citizens wedded to a strong currency, whom the CDU/CSU report addressed directly, insisting that: "Germany has no reason and cannot permit herself to be afraid."

In Spain, the last months of 1997 confirmed the favourable economic trend which had been forecast, and year-end figures should show that growth has already hit 3.5%, the rate predicted for 1998.

Strengthened confidence in the economy has been reflected in investor appetite for the Spanish market and increased internal demand. All this is "the result of a economic policy that has bet on stability", according to the 1997 economic analysis carried out by the Spanish employers' organisation CEOE.

The second relevant aspect of the 1997 results is that, according to the CEOE, inflation will stay within the government objective of 2.2%, "clearly beneath the limit required to join the euro".

And for those worried about whether the public deficit can be kept within the Maastrict Treaty criteria, the Spanish budget approved by parliament has set a deficit objective of 2.4% for 1998.

So is the long shadow of high unemployment, still standing at about 21% of the labour force, going to dim a brilliant future?

Officials and managers all agree that what counts is maintaining the dynamic rhythm of job creation - 2.7% in the period ending last December, which makes the Spanish labour market the second most dynamic in the EU after Ireland.

But looks can be deceptive. The vigorous population increase has made it impossible for Spain to cut its dole queue by more than 1% a year.