The Unspoken Plans Of The European Union

LONDON: It now looks likely that the European Union's plan for economic and monetary union (EMU) will start on time, January 1, 1999, with a single currency and participation of a majority of the 15 member states.

That is certainly what bond markets expect: downward convergence of long-term interest rates, in France and a number of neighboring core countries, toward German levels says that investors believe interest rates in these countries will equalize in ten years' time. Why? Because there will be only one currency and one interest rate.

Bond markets don't have a secret source of information: they reflect the fact that most member governments are making big efforts to assure that EMU happens as promised. To that end, the governments are making strenuous efforts to cut back their budget deficits, so as to qualify for membership in the single currency.

At the recent Dublin summit, the EU's 15 governments gave extra credibility to the prospect for EMU, agreeing on detailed rules aimed at ensuring that the fiscal discipline required to join the single currency will continue into the future, past the launch date of EMU.