GERMAN Finance Minister Mr Theo Waigel, said yesterday he would ensure Germany met the tough criteria for European monetary union (EMU) in 1997, despite leading research institutes' forecasts that it would miss the targets.
The six economic think tanks said Germany's economy was strengthening but its 1997 budget deficit would be 3.5 per cent of economic output, above the 3 per cent "reference value" in the Maastricht Treaty. They also predicted Germany's outstanding debt would slightly exceed the 60 per cent target.
But Mr Waigel said: "The federal government will continue its strict consolidation course. It will create the conditions so that the 1997 deficit lies below 3 per cent of gross domestic product (GDP). The necessary decisions will be met in the final negotiations over the 1997 budget.
Next year is the key year for deciding which countries will participate in EMU at the scheduled start in January 1999. But Mr Waigel who, with the Bundesbank president, Dr Hans Tietmeyer, has been among the most strident voices in Europe that criteria be strictly interpreted to ensure the euro stays at least as stable as the deutschmark, is running out of time.
Recently, the Free Democrats, the junior partners in Chancellor Helmut Kohl's coalition, stood in the way of increasing taxes to plug the widening holes in state finances.
In their semi-annual report, which serves as a reference for the government and does not necessarily influence policy, the institutes said hitting the targets at the beginning of European monetary union was less important than continued stability after the start.
"We assume that EMU will happen," Mr Werner Schatz, chief economist of the Kiel-based Institute of the World Economy (IfW), one of the six, told a news conference. "The (Maastricht) treaty allows for the possibility that the criteria will not be precisely met.
"What's important is a commitment to stability, with sanctions, for the period after the start," Mr Schatz said.
Financial sector analysts also said Mr Waigel would probably not hit the target but Germany would be in the first wave of countries to launch the euro eurrency. "Discussions over a strict interpretation of the Maastricht criteria (will become) more sensitive. Monetary union certainly can't start without Germany," said Ms Karen Kricks-Brunnlieb, head of bond analysis, at Trinkaus & Burkhardt.
The six institutes also said German GDP was likely to grow 1.5 per cent in 1996, rising to 2.5 per cent growth in 1997. The 1996 projection was up from a forecast of 0.75 per cent growth made by the same institutes six months ago.
The Bundesbank should not hesitate to raise interest rates slightly if M3 remained above target. A slight tightening to bring M3 back into the target corridor would pose no danger of ending the economic upturn, the report said.
Unemployment was forecast to remain high at 10.4 per cent in 1997, up from 10.3 per cent in 1996 and 9.4 per cent in 1995, the institutes said.
Meanwhile, consumer price inflation was seen remaining subdued at 1.5 per cent next year, unchanged from this year and down from 1.8 per cent in 1995.
