It would be potentially destabilising of the whole project if countries found themselves obliged to take extremely difficult political decisions in the early years because their fiscal positions had not been properly corrected beforehand. Of course it goes without saying that if a country’s outstanding debt burden is well above the Maastricht guideline it will be much more difficult to achieve a sustainable BIS Review 1/1997  -3-  deficit position, since it will be necessary to run sizeable primary surpluses at high points in the cycle. It is worth recalling that when the Treaty set a figure of 60 per cent of GDP the EU average was 55 per cent. This year it will be over 73 per cent, and only Luxembourg, France and the UK will be below 60 per cent. Any country with a very large outstanding debt to GDP ratio will find the going particularly tough. As far as the UK is concerned, our debt to GDP ratio is relatively low at 56 per cent, but while we have made considerable progress towards fiscal consolidation in recent years, our deficit remains above the Maastricht guideline, even after almost five years of growth. A UK government of any political colour, as it comes to make a decision on our readiness for EMU membership next year, will be bound to take that into consideration. The latest government forecast, after the recent Budget, shows us achieving a figure of a touch below 3 per cent in calendar 1997.
Looking at Europe’s regional economies, it is striking that relativities between them have remained so stubbornly large for so long, even within individual member states. Indeed only in the UK have there been some recent signs that relative unemployment rates, from prosperous to less prosperous regions, have begun to converge. That appears to be related in changes in relative wages which have come about as a result of the dismantling of centralised pay bargaining, and of other labour market restrictions, in the 1980s. Elsewhere in Europe those changes have not been made; without them we would have to enter a reserve on the preparedness of some European economies for the rigours of a single currency. That is another point which, I am sure, any British government will wish to take into account in making its final decision. And we would feel more comfortable about the likely success of EMU as a whole - and I emphasise that the success of EMU is strongly in the British national interest, whether we are in or out were we to see faster progress towards greater labour market flexibility elsewhere in Europe. It may be argued that EMU itself will act as a stimulus to reforms needed in fiscal policy, and in labour markets; indeed that the prospect of EMU is already doing so. We cautious, pragmatic, non-visionary people that we are - would like to see the needed reforms implemented first.