The prospect of moving ahead to European Monetary Union by 1 January 1999 is looking increasingly bleak. Despite a recent attempt by finance ministers to patch up political differences among the leading European countries, there is only a slim chance that a viable group of nations will meet the economic criteria by mid-1997, the latest realistic date for a 1999 start.
As a result, there is increasing concern that failure on the core Maastricht issue of monetary union could lead to a deterioration of diplomatic and trade relations among European Union members, halting progress on other issues of integration from common security to competition policy and transport.
At the core of the current difficulties over monetary union is Germany's decision to insist there be no backsliding on the fiscal criteria outlined in the Maastricht treaty. The criteria state that any country joining the single currency must maintain a budget deficit of no more than 3 per cent of gross domestic product (GDP) and that its national debt should be no more than 60 per cent of GDP.
However, since the European Commission published its Green Paper on practical steps to be taken towards monetary union, there has been an increasing assumption - by countries outside the limits - that the authorities would make exceptions to ensure a viable group of countries goes forward.
Already, special dispensation has been granted by the EC to Ireland, which meets all the criteria other than the percentage of national debt. The expectation had been that other countries seeking to lower their national debt - including Italy, and maybe Belgium and France - would thus also be able to slide in.
However, German finance minister Theo Waigel is making it plain that Germany would have no part of a monetary union in which countries like Italy - which is nowhere near to meeting the budgetary criteria - take part. Italy, under the premiership of Lamberto Dini, has repeatedly stated its determination to rejoin the exchange rate mechanism (from which it was ejected with the UK and Spain in 1992), and from there move into the fast track for monetary union.
But Germany, conscious of the high esteem in which the mark is held at home, is refusing to move forward on any monetary system which could weaken the mark on the foreign exchange markets.
The consequence of Germany's unswerving position has been a period of turbulence on the foreign exchange markets which could potentially intensify in the less than two years before a final decision can be taken. The diplomatic row which flared between Germany and Italy this autumn -Êwhich had to be calmed in a bilateral meeting between German and Italian heads of government - illustrates only too clearly the potential banana skins, not just on the currency markets but for relations among EU countries, should monetary union go wrong.
Indeed, some European experts believe that Germany has deliberately contrived this autumn's stand-off to kill the concept of monetary union, and save Chancellor Kohl's government the embarrassment of having to backtrack on promises to preserve the integrity of the German mark.
If Italy is to be excluded, then the balance between north and south in the new Europe will be wrong. But as significantly, the German insistence that there can be no weakening of the criteria almost certainly means that France would be excluded too. The 1995/6 French budget - President Jacques Chirac's first - suggests that progress in eliminating the budget deficit will not be speedy enough for Paris to be drawn into monetary union.
A similar outcome is likely for Spain which is struggling to correct a structural budget deficit. Meanwhile, even Belgium would have to be excluded because its accumulated debt levels are almost double the 60 per cent level.
This would mean that only a handful of countries would automatically qualify for monetary union: Germany itself, Austria and possibly the Netherlands. Ironically, on current monetary and budgetary forecasts, both the UK and Denmark would also pass the test set by Maastricht even though both negotiated potential opt-outs from monetary union, to satisfy critics of Euro-federalism.
But the real test for Maastricht and the strains it may put on the European ideal comes from France. Though the Franco-German alliance has been at the core of the EU, there are already indications that Chirac's conservative government prefers a more independent security policy, as its nuclear tests in the South Pacific bear out. If France found itself excluded from monetary union, having sacrificed so many jobs to keep the French franc as strong as the mark, then the ties binding the community together could easily unravel.
Certain aspects of European union appear unaffected by the recent differences. In the aerospace industry there are signs that BAe and Dasa could come together in an increasingly competitive global market. Moreover, in air transport - as the UK Civil Aviation Authority's recent report pointed out - there are indications that deregulation is progressing, led by carriers like BA operating in French and German domestic markets.
However, if the monetary aspects of European unity start to crumble, this could weaken Transport Commissioner Neil Kinnock's efforts to replace national air talks with the US with a single negotiation between the EU and the USA. And a more restrictive policy on state aid could prove to be even more difficult.
It is not just monetary union which would be in danger of foundering but the closer political relationships which have led to increased trade and economic integration.
Source: Airline Business