The Euro - in some doubt

Doubts over Euro as German Government Backs Down

The row surfaced a few days ago when Finance Minister Theo Waigel proposed increasing the value of the reserves as a way of reducing the budget deficit, which is running too high to allow the country to enter the Single Currency. Bundesbank president Hans Tietmeyer rejected the plan, accusing him of financial trickery and of undermining the future stability of the Euro.

Bundesbank President rejects government plan

After a day of secret talks between the two sides, Mr Waigel said he had reached what he claimed was a "good compromise". However, Mr Tietmeyer later said that no deal had actually been struck, though discussions were going on.

Even if there is an agreement, it does not look as though it will satisfy the government's needs. The deal on the table is understood to involve the transfer of funds taking place in 1998 rather than this year. This still leaves Bonn with a huge problem as it needs the funds now to reduce the 1997 deficit to 3.0% or less of gross domestic product in order to meet the Maastricht criteria.

Mr Waigel told deputies from the governing Christian Democrats that Germany would still make the 1997 deadline. He said that he would now have to cut spending and speed up his privatisation programme.

Chancellor Kohl and his coalition partners

Mr Waigel's other option, tax rises, appears to have been ruled out by the Christian Democrats' coalition partners, the Free Democrats.

With France electing a Socialist government at least partly because of opposition to the single currency, there are serious doubts over whether the Euro will go ahead on time in 1999.

Newsnight's Evan Davis analyses the future of the Euro (3m 25s)
(Also heard is Nomura International's Bronwyn Curtis.)

See also: Major calls for Euro delay