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Politics : Clinton -- doomed & wagging, Japan collapses, Y2K bug, etc -- Ignore unavailable to you. Want to Upgrade?

To: SOROS who wrote (98)	9/6/1998 2:22:00 PM
From: SOROS	Respond to of 1151

Electronic Telegraph - London - 09/06/98 By Toby Helm, EU Correspondent, in Salzburg, Austria EUROPEAN leaders redoubled their efforts to prevent a crisis of confidence in the single currency yesterday by insisting that "euroland" was already shielding its 11 member countries against the deepening turmoil in world markets. With less than four months to go before the biggest and most risky experiment in the European Union's history is launched senior government figures were trying to calm nerves by praising the unborn currency's early record. At a meeting of EU foreign ministers in Salzburg, Austria, which holds the presidency, Wolfgang Schssel took the lead by highlighting how some non-euro currencies were suffering on the markets,while those that will be in euroland had stood rock solid. Europe had created a "very important answer" to counter economic shocks, a massive currency block which, he claimed, was protecting individual, weaker economies and leaving those outside more vulnerable. He said: "Don't forget we have member states of the EU not integrated in Emu and in some cases the markets are attacking those currencies . . . This shows we need more co-ordination, more Europe not less Europe. He was referring to Denmark, which has already had to act in foreign exchange markets to protect its peg to the D-mark and Sweden, neither of which will be Emu founder members. Mr Schssel's message that "Emu is already working" echoed that of Jacques Santer, European Commission president, who said on the eve of the meeting how glad he was that all key decisions on the euro had been taken in May, well before the Russia crisis broke. But the carefully orchestrated propaganda coming out of Salzburg disguised a less cheerful reality - that the euro will arrive in what many economists believe are the most worrying global economic conditions for decades. On one thing alone, all serious politicians, financiers and economists are united. Barring some massive, additional economic trauma, the euro will go ahead on January 1 with 11 countries taking part. Far too much political capital has been invested to contemplate delay, which would anyway smack of panic and unleash a loss of confidence in Europe that could make the effects of Russia's crisis look like small beer. But, at the same time, even Mr Schssel knows that the turmoil in Moscow, the Far East and the worries on Wall Street cause massive complications for the the new currency's launch. One worry is that because many EU countries - including the big guns, Germany, France and Italy - passed their economic tests for qualification only by the narrowest of margins (and with the help of book-keeping tricks), a slowdown in growth levels from three per cent this year could put them in breach of their Maastricht Treaty limits this year or next. The prospect of economic slowdown has also presented the new European Central Bank, which will run monetary policy in the euro zone, with a delicate dilemma over interest rates. If it gets its decision wrong the results could be ruinous. The key question is whether, following the Russia crisis, short-term rates should be set lower than the 3.5 per cent envisaged by most experts before the crisis broke, in order to keep the European economy on a growth path. While America might well have to pull down its rates in order to stimulate growth, the fear is that Wim Duisenberg, new president of the European Central Bank, and his board members will hold them too high for too long. Some fear that that would be an error that could even trigger deflation. The stakes could hardly be higher for the reputation of the euro, as its momentous birth approaches.