Why Dance To Germany's Tune?

Any doubts that European monetary union can take place only on Germany's terms were laid to rest in Valencia, Spain, on Sept. 29-30 at a European finance ministers meeting. Forceful diplomacy by Finance Minister Theodor Waigel and Bundesbank President Hans Tietmeyer forced European Union ministers, in effect, to bow to German demands on conditions for a single currency. Those joining the scheme to create the "Euro" will have to meet tough goals, including containing government deficits and outstanding debt to no more than 3% and 60%, respectively, of gross domestic product. Entry tickets will be issued on the basis of actual 1997 economic data, not rosy forecasts. And once in, countries will sign a "gentleman's agreement" to continue to meet the goals.

This works well for Germany, but voters in the rest of Europe have their doubts. It is easy to see what Germany stands to gain from the deal. Politically, Germany is cloaking its ambitions by pretending to speak for the good of Europe, as when it insisted on recognizing an independent Croatia. Economically, it robs its neighbors of an important policy tool--competitive devaluation, used recently by Britain and Italy to generate faster growth than their neighbors.

Therefore, it's hard to see why other countries are in such a hurry to bend to Germany. The Jan. 1, 1999, target for starting monetary union is unrealistic. Italy has little hope of achieving the goals on schedule, and it will be a struggle for France. The idea of replacing their sovereign currencies with a Euro is distinctly unpopular in Europe. Voters who lose their jobs and then see their social welfare benefits cut to meet deficit targets imposed by Germany are going to hate the concept even more. Worse, both Germany and France have parliamentary elections scheduled in 1998, hardly the best time to tell voters they will lose their marks and francs. And the Euro-skeptical British will control the EU presidency in the first half of that year, when key decisions have to be made.

So an air of unreality continues to surround the Euro. It's as if Europe's leaders believed that the very act of signing up to join a monastery made them holy. Europe's voters disagree--and appear to have no intention of donning designer sackcloth and ashes to go to turn-of-the-century balls.

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