EUROPE'S unemployment rate is stuck stubbornly at 12 per cent, economic growth is slowing and many of its economies look increasingly uncompetitive. Yet the focus of public debate and political discussion is on the rather arbitrary rules set down in the Maastricht Treaty for states wishing to qualify for a single currency.
If Europe's politicians are to sell the euro to the public, then they must demonstrate that the move to a single currency can help to create economic dynamism. So far they have failed to make this case.
It is ironic that a rash of economic figures and predictions from France and Germany over the past 10 days coincided with the launch in Brussels of the Commission's promotional campaign for the single currency. If the medicine of lower interest rates does not revive the ailing Continental EU economies, then even France and Germany will struggle to keep their budget deficits below the 3 per cent level stipulated in the Maastricht Treaty. The problem is particularly acute in France, where the deficit is over 4.5 per cent of national output.
It is far too early to predict that the Maastricht Treaty timetable is going to be abandoned. Under the Treaty rules it will be the 1997 economic performance which will count in determining which states qualify. This time next year things could look very different. A revival of economic growth would make it much easier for the deficit rules to be met, as it would boost tax revenues and reduce the need for social security spending The Treaty also leaves room for flexibility in interpreting which states meet its rules of the budget deficit and the national debt, although the Germans continue to argue for a strict interpretation.
However while Europe's politicians and civil servants split hairs over the fine print of the Treaty, real economic problems remain to be tackled. Public pressure persuaded both France and Germany to publish new proposals this week to try to boost economic growth. The Commission president, Jacques Santer, is also putting forward proposals.
Europe's politicians are being forced to acknowledge the real economic challenge facing the Continent, which is to try to restore the economic dynamism necessary to prosper in an increasingly integrated and competitive world economy. Mr Santer argues that a single currency can contribute to such a strategy. But can it?
At its inception, the plan to move to a single currency was inspired primarily by political considerations. The economic rationale was that it would make Europe into a genuine single market, save businesses and the public cost of currency transactions and help to keep interest rates low. The associated problems and risks of introducing a single currency were glossed over, the worry is that a year before the final decision is due to be made on whether to go ahead, these issues have still to be sorted out. The case that the single currency will boost the living standards of Europe's citizens remains unproven.
In Ireland, debate has centred on whether the pound should join if sterling does not. This issue is all the more important as little progress has been made on the relationship between the states who join and their currencies and those who fall to qualify or wish to remain outside.
However it is one of only a host of crucial questions about the single currency a project which is attempting to marry the currencies of states with varying level of real economic performance and wealth Monetary union is planned to go ahead before any further steps to create a fully fledged economic or political union. This raises key issues such as how control of the new European central bank is to be managed.
It also means that unlike other single currency areas Europe has no sizeable central budget to act as a shock absorber.
A recent Institute of European Affairs report estimated that an increase in the EU budget to close to 2 per cent of GDP from slightly over 1 per cent now being targeted would be sufficient to set up a stabilisation fund and increase regional transfers. However even such a modest budgetary expansion is not on the agenda at the moment.
The implications of individual member states losing the ability to adjust their exchange rates must also be examined. This might not be an issue for states such as Holland and Germany which have maintained a close link in recent years, but it certainly is for Ireland.
Many key questions thus remain to be answered about the single currency. And no matter what happens to project euro, politicians across Europe need to be looking at a host of other policies to address unemployment in areas such as taxation, social insurance, industrial policy and state companies. Jobs and living standards should be put firmly at the centre of European economic policy.
