French `audit' casts shadow

Monetary union watchers have been able to take a breather from the alarms caused by the election of the new French Socialist government earlier this month. The week proved quiet in terms of big public developments, although beneath the surface the debate continues to rumble over whether 1999 will see a "hard" or a "soft" EMU.

James Barty at Deutsche Morgan Grenfell highlights the problem of the French deficit for this year, which could emerge from an "audit" being conducted by the new government at well above the Maastricht-imposed limit of 3 per cent of gross domestic product. If it ends up above 3.5 per cent "we get into problem territory, because it will be difficult to reconcile something that's closer to 4 per cent than 3", he said.

That could cause further problems for Chancellor Helmut Kohl's government in Germany, which has appeared ready to fudge the Maastricht criteria. There are signs that the Bavarian-based CSU, of which Theo Waigel, the Finance Minister, is a member, has hardened its stance on EMU. Phillip Chitty of ABN Amro Hoare Govett expects to hear some sabre rattling from the Bundesbank next week.