German bank hints at delay in EMU

Hans Tietmeyer, president of the Bundesbank, has suggested that European Monetary Union be delayed.

A report in Germany's Der Spiegel magazine yesterday quotes Mr Tietmeyer as asking: "Wouldn't it be a possibility, together with France, to agree to a delay in the start of the euro?"

His comments were extracted from an article which Der Spiegel says will be published this week. Quoting unnamed sources , the magazine suggests that Mr Tietmeyer believes there is nothing wrong with a delay if Germany and France do not meet the criteria for membership of a single curency, due to start on 1 January 1999.

Talk of a delay was immediately dismissed by the German finance minister, Theo Waigel.

"It does not make sense to discuss a delay in currency union," he said, adding that such talk would only create unrest in financial markets.

If Der Spiegel has accurately reflected Mr Tietmeyer's thoughts, it will be a further blow to EMU and heighten mounting tension between the Bundesbank and the German government. The central bank clashed with Mr Waigel last week over his plans to revalue the bank's gold reserves and use part of the gain to reduce public borrowings in an effort to help Germany meet the single currency admission criteria.

The spat has unsettled markets, which fear that the euro will be a much weaker currency if it goes ahead on time. Those fears have been heightened by the prospect of a socialist coalition seizing power in today's final round of the French elections.

The socialists say that should joining the euro require more belt-tightening and budgetary restrictions in France, they would not go out of their way to qualify. The French currency would suffer, at least momentarily, if they won. "If the left is elected, the franc will be attacked in a first stage," said Louis-Michel Lavin at Credit Lyonnais in Paris.

Lionel Jospin, the socialist leader who would be the next prime minister if his coalition wins a majority, said last month: "If, to meet the 3 per cent deficit target, we must impose a new bout of austerity on the country then my answer is no."

In a toughening of his stance, Mr Jospin rejected a European Union "stability pact", which calls for fining EMU participants that let their debt and deficits get out of hand, calling it "a concession absurdly made to the Germans". The pact is a key condition for Germany joining.