Two years ago, the suggestion that Spain might join Europe's single-currency zone in 1999 would have been laughable.

But today even hard-nosed foreign-exchange dealers and bond traders concede it might just happen. Economic and monetary union is also seeping into the national psyche with the single currency vying for television time with soccer and soap operas.The turnaround has been totally unexpected. Just 18 months ago stock prices were tumbling, 10-year government bond yields were reaching record highs and the peseta was close to expulsion from Europe's Exchange Rate Mechanism after four devaluations in less than two years.

The current betting is that Spain will just fail to meet all four criteria on budget deficit, public debt, inflation and interest rates to qualify for the Euro club. But the government insists the figures will come right in 1997, the year which will be used by the EU to decide which of its 15-member countries have made the grade.

Spain is keeping good company. Germany, the linchpin of the Euro, might not make it either, according to a recent report by the country's six leading research institutes.

And Spain is very careful about the company it keeps. Prime Minister Jose Maria Aznar recently rebuffed a plea from his Italian counterpart Romano Prodi to launch a Mediterranean initiative to soften the Euro criteria or the timetable. Today, Spain is increasingly judging itself against its northern neighbor France, just as France treats Germany as its economic role model.

Mr. Aznar has announced Draconian spending cuts to meet the key Euro criterion - a budget deficit of 3 percent of gross domestic product or less. And cutting spending in a country with a 23 percent jobless rate, Europe's highest, will take nerves of steel. So far, Mr. Aznar hasn't flinched, and so far there's has been none of the labor unrest that forced the French government to withdraw some budget cuts.

The government is also launching a privatization drive, restructuring some state-owned companies and closing others in a bid to cut state expenditure.

What makes this all the more impressive is that the assault on state spending is being carried out by a center right government that is still finding its feet after its election last May that ended 13 years of Socialist rule.

The possibility that Spain might be joining monetary union in 1999 has sparked alarm in Bonn and Paris, which are deeply suspicious of Madrid's sudden conversion to good housekeeping. Their biggest fear is that Spain will come so uncomfortably close to meeting the criteria on deficits and debt that it will be politically impossible to deny it entry into EMU.

France's strictures against the Mediterranean countries sound slightly hollow anyway after it decided to use over $7 billion of pension funds from soon-to-be privatized France Telecom to cut its 1997 budget deficit. The European Commission's approval of this creative accounting last week had more than a whiff of political expediency.

There is ample justification for cynicism over Spain's eligibility for EMU given its long record of state profligacy. But there is also an inborn feeling among the EU's northern states that it just doesn't seem right that Spain should be joining them in the Euro club the minute the doors are opened.

This misplaced superiority complex results from a delayed reaction to the spectacular changes that have taken place in Spain in less than a generation. Its northern neighbors have yet come to grips with the ''new'' country on their doorstep.

Political prisoners were still be being executed in Spain in 1975, the year Franco died, ending 35 years of dictatorship and isolation from the European mainstream. There was an attempted military coup as late as 1981 and coins with Franco's face are still legal tender until the end of this year. The victory that brought Mr. Aznar to power was the first time a right wing government succeeded a left-wing administration since the 1933 poll which sowed the seeds of the Civil War three years later.

The fact that a shy, self-effacing 43-year-old former tax inspector ousted the charismatic Socialist leader Felipe Gonzalez underlined the fact that Spain had finally become a democracy at ease with itself.

This, rather than qualifying for EMU in 1999, is what matters. And now that Spain has finally bitten the bullet on public spending, it is certain to be in the single-currency zone within three to four years of the 1999 launch.

Spanish entry into monetary union will be good for the EU because it will help prevent the creation of a north-south wedge just as the countries of Central and Eastern Europe begin their negotiations to join the bloc.

For the full story: Log In, Register for Free or Subscribe