This weekend's meeting of EU finance ministers signals the start of what could be a very turbulent period on the European money markets. The finance ministers, who are meeting informally in Luxembourg, still have a number of key decisions to make on the path to monetary union.

With EU governments having to decide on the final shape of the single currency by next spring at the latest, the ministers must already be turning their mind to the crucial discussions which lie ahead. The financial markets certainly are - and the finance ministers will have to negotiate a markets minefield in the months ahead as investors try to second-guess which currencies will join the single currency and at what rates.

Until now the ministers have been able to put all decisions on the long finger, pointing out that no decisions can be taken until the economic figures from all the member-states for 1997 are known. These will determine which states meet the Maastricht qualifying criteria and which fail. And then political judgments will be made on how far the rules will be bent.

But the finance ministers will not be able to hold back the tide of market speculation for ever. Over the months ahead economic figures for the second half of this year will be published, giving a clear indication of which states are on course to qualify and which are not. Every piece of data will be watched intensely to see if it gives any clue to which countries will be able to join the currency or, indeed, if it can proceed as planned.

Meanwhile, every comment from Europe's political leaders and key officials from the Bundesbank and elsewhere will be dissected and discussed to see which way the political wind is blowing. While most believe EMU will go ahead on schedule, there is still some speculation in the markets that the whole project could be delayed. And uncertainty remains about the two key questions to be decided - which states will join monetary union and at what rates.

While the authorities will undoubtedly continue to attempt to kick to touch, they will be under increasing pressure to clarify exactly how and when decisions will be made.

The resulting volatility and the possibility of making large sums of money from speculation will mean that the authorities across Europe will not have an easy time.

One of the two key issues still outstanding is exactly how each national currency will convert into the euro. This not only has major implications for every saver, borrower and pensioner in the member-states, it is where the speculators can scent the possibility of making serious money. Already the pound is being bought and sold on the markets on the basis of investors taking "bets" on this issue.

AS well as these financial problems, there is also a political dimension surrounding who will be "in" and who "out" of the single-currency club. And here the key players - Dr Helmut Kohl in Germany and President Chirac and his government - will have a crucial say. Dr Kohl, in particular, faces the task of persuading German public opinion that the euro will be as strong and stable as the D-mark.

The German attitude to Italian membership will be one crucial issue. Italy is determined to join, but from the German perspective embracing the lira in the single currency could weaken it in the eyes of the market.

The Germans are already in considerable difficulty themselves. German unemployment could go as high as five million this year, foreshadowing a miserable winter, with ever-growing dole queues. The slump in the jobs market at the same time as an economic upturn is putting a strain on the country's efforts to qualify for monetary union. Spending on the unemployed will jeopardise the attempt to meet the budget deficit criteria and trimming spending elsewhere could put even more people out of work.

In this sort of environment the Germans are more reluctant than ever to tie themselves to what they perceive as high-spending, inflation-tolerant Italians. Most observers now expect the Germans to try to hold off on all decisions until as late as possible. The president of the Bundesbank, Hans Tietmeyer, will not want to commit himself to spending German money supporting the lira until the last possible moment.

It is for this reason probably more than any other that no serious announcements are likely this weekend from Luxembourg. While its prime minister and finance minister, Jean-Claude Junker, has said he wants ministers to discuss the conversion rates at the meeting, the issue is not on the formal agenda and is only likely to be discussed at the margins.

Nevertheless, there will be intense contacts between the various central banks and finance departments over the rest of this year. While all member-states are facing the possibility of turbulence, arguably Ireland has the most to lose.

The pound is closely aligned to the fortunes of sterling and there is almost no chance that the UK will enter the euro area as a founding member. The biggest possible disaster for Ireland after entering the euro would be for a significant depreciation of sterling. According to ESRI forecasts, this could in the worst case lead to the loss of up to 28,000 jobs as a result of a 20 per cent depreciation in sterling.

The irony is that since this analysis was done sterling has gained considerable ground, moving ahead from 2.25 deutschmarks last year to almost three only weeks ago. This move put pressure on the Irish authorities to re-value the pound's central rate in the ERM.

While this pressure is still on, with many international speculators buying the pound over recent weeks, it could prove a very costly mistake. Mr Brendan Lynch, former adviser to Ruairi Quinn, has warned that a revaluation at this time could prove a serious mistake.

He warns that sterling could over the longer term be heading back towards 2.5 or 2.2 D-marks, or even lower. So re-valuing the pound's central rate in the ERM now could leave Ireland cruelly exposed if sterling subsequently fell sharply.

Europe's leaders thus face a crucial period on moving to monetary union. In the months ahead, the markets will buzz with speculation about the intentions of powerful players like the Bundesbank and the political position of the key players in Germany and France. The challenge for the politicians is to remain one step ahead. But the danger is that the markets may try to set their own agenda.

Tomorrow: Cliff Taylor on Ireland and EMU