MR Romano Prodi, the Italian Prime Minister, arrives in Bonn today for talks with the German Chancellor, Dr Helmut Kohl, aimed at defusing a dispute over the date of Italy's entry into European Monetary Union (EMU).
Italy hopes to join EMU at its launch in 1999 but Germany fears that the involvement of the lira could weaken the euro and upset financial markets.
Officials in Rome have dismissed reports this week that European Union central bankers have devised a compromise to allow Italy to join EMU in 2000 or 2001, a year or 18 months after the start of the euro.
In an article in the Italian newspaper La Repubblica yesterday, Dr Kohl insisted that the single currency would start as planned in 1999, describing the timetable as unbreakable.
"We are in favour of a start to Economic and Monetary Union on January 1st, 1999, as laid down in the treaty. The date and the respect for the convergence criteria are unbreakable. We want together a stable euro," he wrote.
The Chancellor, who met the Spanish Prime Minister, Mr Jose Aznar, Iast week, said on Tuesday that he would tell Mr Prodi that both Germany and Italy still had work to do on the road to EMU.
"Our Italian friends have the same problems as the Germans. I'll tell my friend Mr Prodi that they'll have to do their homework. We do too," he said.
More evidence of the extent of Germany's economic problems emerged yesterday with the publication of official unemployment figures for January showing a rise of 450,000 to a post war high of 4.66 million. The sharp rise in unemployment, 200,000 more than expected, is chiefly due to a downturn in the construction industry and the increased use of cheap foreign labour by building contractors.
It follows weaker manufacturing orders than expected for December, 1.4 per cent lower than the previous month.
The Bundesbank refused to respond to the latest figures at its council meeting yesterday, keeping interest rates unchanged and signalling that there would be no change of credit policy in the immediate future.
The discount rate remains at 2.5 per cent and the Lombard rate at 4.5 per cent. The Bundesbank's main money market rate was fixed for the next two weeks at 3 per cent.
The German finance ministry predicted yesterday that tomorrow's G7 summit in Berlin would produce a positive evaluation of the state of the world economy. Bonn welcomed the recent rise in the value of the dollar, which it described as a normalisation of the US currency's fall in value at the beginning of 1995.
