Bundesbank Accepts the Euro but Damns the Plan in Detail
Byline: ANDREW ALEXANDER
THE Bundesbank's report giving oh-so-reluctant approval to an 11-member Euro zone is a curious and self-contradictory document. Of course, the bank does not want to precipitate a crisis.
But it also makes clear why the proposed system could eventually fall apart.
It does not pussyfoot around in its detailed comments - unlike Wednesday's report from the European Monetary Institute. One sentence is particularly damning: 'It is becoming evident that the majority of the member states will not achieve the aims of the stability pact in the medium term.' For individual countries, the bank reserves some stern comments. On a sustainable financial position 'serious concern exists in the case of Belgium and Italy' - a reference to those countries' massive debts. The bank calls for 'additional further, substantive commitments'.
On France and Spain, the report calls for remedial measures to cope with unprofitable state-owned industries. In the case of those two countries plus Germany, Austria, Holland and Portugal, government spending ratios need to be reduced. And 'radical reform' of the social security systems is necessary to reach a 'sustainable' financial position.
It also warns that heavy new burdens may be imposed on the government budgets of virtually all 11 countries because of demographic trends and rising pension liabilities.
Of the countries with debts over the Maastricht level of 60pc of gross domestic product - which means nearly all 11 - only Ireland and Holland showed a surplus in 1997 which, if continued for 10 years, would bring the debts down to the required level. The apparent inability of the others to reach even that modest target is pretty damning.
The BBK has provided itself with an interesting let-out in its conclusion that the euro will be a stable currency. This will be achieved, first, because the European Central Bank will be independent.
And, second, the Stability Pact will 'ensure that Euro members carry out healthy fiscal policies'.
Thus when and if the pact fails to keep member states in line as is widely feared - the BBK will be able to say that its approval was only conditional on that agreement being enforced.
The prospects for the pact are poor. The agreement says that countries which break the Maas-tricht rules on budgets will, in theory, be fined unless a special case for hardship can be made out. …