A DANGEROUS GAME FOR BRITAIN

For those students of European Union squabbling it is a tantalizing scenario.

It is late 1996 and ministers from the 15 EU member states must decide whether they will proceed toward monetary union the following year. As required by the Maastricht Treaty, a majority of member states have met the strict monetary and fiscal targets designed to promote economic convergence. But under the terms of the treaty, agreed in the Dutch town of the same name in 1991, a majority meeting the criteria is not enough. Those eight countries must also agree to go forward.And this is where complications begin.

Suppose one of the eight decides for political reasons it is not prepared to go ahead toward economic and monetary union (EMU). Such a declaration would mean not only that this country has "opted-out" of the process, but that the other seven cannot go ahead toward EMU.

Given the bizarre recent state of British politics, this prospect is not farfetched. Adding to the confusion created by such an obstructionist tack is the fact that the treaty states that no country may hold up the others on the road to EMU.

The lifting of recession across the EU economies has significantly improved the prospects that a majority of the states will have reduced their budget deficits to 3 percent of GDP and cut their overall stock of debt to 60 percent, and that inflation among the eight will not vary by more than 1.5 percent. If interest rates among the qualifying countries also are within 2 percent, then the convergence criteria will be met.

At this point it looks highly probable that Germany, the Netherlands, Austria, France, Britain, Denmark and Luxembourg will hit the targets. Ireland would be on course save for a debt stock that exceeds 90 percent of GDP. The same applies to Belgium, which has an overall debt figure equal to 122 percent of GDP.

But the treaty offers a way around this sticky problem by stating that those countries missing the target can qualify anyway, provided the ratio is diminishing "at a satisfactory pace." The member states already have given a nod to Ireland by stating last year that Dublin's fiscal policies were sound and that a "satisfactory pace" was being maintained.

With Ireland on board, the number becomes eight, and yet Britain - a country boasting some of the best EMU credentials in the EU and an almost certain qualifier - may pull the rug out from under the whole operation.

Right-wing ministers in Prime Minister John Major's Conservative Cabinet have laid down the marker that they will not proceed to EMU under any circumstances. Mr. Major has always assumed that since the necessary eight countries will not qualify, any discussion of EMU by 1997 was purely academic.

But now Downing Street is growing nervous. In a bid to hold together his shaky government, Mr. Major has sought to calm these "Euro-Sceptics" by introducing additional economic criteria - presumably a harmonization of unemployment figures among the member states - that must be met before Britain would consider joining EMU.

Britain secured an "opt-out" at Maastricht and the decision on joining is to be left to Parliament. But the possibility now exists that Mr. Major's government would not even bring the measure to a vote on the grounds that an arbitrary set of guidelines - introduced late in the day - have not been met.

This change of rules is a smoke-screen for opting out on political grounds. People like Employment Secretary Michael Portillo and Treasury Chief Secretary Jonathan Aitken do not want to argue the merits and drawbacks of EMU on economic grounds. Rather they object to such union on grounds that it would be a surrender of British sovereignty.

Foreign Secretary Douglas Hurd and Kenneth Clarke, the chancellor of the Exchequer, men who see the economic merits of EMU, have seemingly been shunted to the sidelines.

Other countries, particularly France, which now holds the revolving EU presidency, have begun to contemplate the impact of internal British politics on EMU. Ever forward-thinking French bureaucrats have begun looking for ways to circumvent an abstention by Britain - or Denmark, which also holds an opt- out.

Last week in Paris, a senior French official speculated the treaty could be interpreted in such a way as to exclude Britain and Denmark from the total number of candidates for EMU. Since they have an opt-out, the official reasoned, they should not be included. Absent these two countries, only seven countries are needed to constitute a majority.

But even given the wide room for interpretation in the treaty, it's unlikely a majority of member states would accept such a plan.

It's more likely Mr. Major will have positioned himself in such a way as to deny the benefits of EMU not only to his own citizens but to the great majority of those around the EU as well. In the bargain, he will have bought

himself a cratefull of bad will from his European partners.

But dismay among the others will not be long-lived. By 1999, the treaty states that even if only two countries meet the criteria, EMU can begin. This will certainly occur.

Should Britain continue to dither, it will again find itself on the outside looking in. Sterling will be seen as an ever more marginal currency, foreign investors will have second thoughts about investing in a country so vulnerable to foreign exchange fluctuations, and the rules of the EMU game will be set by others.

Then again, by 1999, Mr. Major and his unpopular government may have been swept from office and the energetic and open-minded Labour leader, Tony Blair, could lead Britain into a monetary union.

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