Germany, the self-appointed guardian of the euro's stability, will itself be unable to meet the economic criteria for entry to Economic and Monetary Union (EMU), according to Chancellor Helmut Kohl's top economic advisers.
The "Five Wise Men", a panel of independent economic experts who advise the German government, predicted yesterday that Bonn's budget deficit this year would reach 3.1 per cent of Gross Domestic Product.
According to the Maastricht Treaty, each member of the European Union must keep its budget deficit below 3 per cent of GDP to qualify for membership of EMU.
The panel expects the German economy to grow by 2.5 per cent this year and by 3 per cent in 1998, in line with government predictions. But the recovery will not be strong enough to ease Germany's record unemployment, which could even rise next year.
The Finance Minister, Mr Theo Waigel, insisted the panel's report confirmed Germany was on the right track and that inflation was under control. And he promised the budget deficit would stay below 3 per cent of GDP, despite a fall in tax revenues.
"The economic recovery will continue in 1998 without inflationary tensions and a turnaround in the labour market can be expected," he said.
But Mr Karl Diller, an economic spokesman for the opposition Social Democrats (SPD), claimed Mr Waigel would have to plug a DM10 billion (£3.84 billion) hole in his budget and that the budget deficit would be 3.25 per cent of GDP.
The SPD will table a Bundestag motion condemning Mr Waigel's 1998 budget as unconstitutional, on the grounds that the deficit will be higher than investment.
Yesterday's report by the "Five Wise Men" is more optimistic about Germany's economic prospects than that of Germany's six leading economic institutes.
The institutes predicted a slower rate of growth both for 1997 and 1998, but they did expect Germany to qualify for entry to EMU.
The latest doubts about Germany's chances of meeting the Maastricht criteria follow a warning by the Bundesbank president, Dr Hans Tietmeyer, that the introduction of the euro could bring a "rude awakening" for some European governments.
Speaking to journalists in Frankfurt, Dr Tietmeyer predicted that the loss of control over exchange rates would impose a tough new discipline on governments. He said a common European interest rate should be set close to the lower range of rates among EMU members.
