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IMF sees seven nations meeting EMU deficit target

WASHINGTON: The International Monetary Fund, in its semi-annual global economic review , expects seven of the European Union's 15-member block to meet the deficit criteria for membership in a future single currency.

Luxembourg, Ireland, Finland, Denmark, Sweden, the Netherlands and Britain are all seen bringing their public deficits below three percent of total output by 1997.

"The recent deterioration in cyclical conditions in much of continental Europe has further complicated the convergence process, although by 1997 a number of countries are still projected to be within striking distance of the three percent reference value for fiscal deficits," the Fund said.

Countries wishing to join a monetary union -- scheduled to start in 1999 -- will be judged on their economic performance in 1997. EU leaders will make a decision on which countries qualify sometime in early 1998.

For Germany and France, two countries which are considered essential in launching a single currency, the Fund estimated 1997 budget deficts of 3.4 and 3.6 percent of gross domestic product (GDP), respectively.

Despite the difficulties many EU countries have in meeting the Maastricht treaty's tough deficit requirements, the Fund said the fiscal situation in many countries looked more favourable if one took account of the present economic slowdown.

The Fund's staff estimated that the margins of economic slack within the EU in 1995 may have amounted to roughly 2.5 percent of potential GDP. As a result, this would imply "a cyclical component in EU countries' budget deficits of about 1.5 percent of GDP."

While the Maastricht treaty does not address whether cyclical factors might be considered in evaluating the progress made towards economic convergence, it does allow for "exceptional and temporary" variances from the agreed reference value.

Some have argued that this clause should allow EU leaders greater flexibility in deciding which countries actually meet the treaty's budget deficit criteria.

Europe's economic woes will be high on the agenda when monetary officials from the Group of Seven industrialised countries meet here on Sunday.-Reuter