Waigels Gambit

public. Thus short-term, corner-cutting can do harm in the long run.

Western Europe has seen much such corner-cutting in preparation for the introduction of Euro, the common currency, in 1998. To qualify for membership of the European Monetary Union (EMU), a member country of the European Union would have to reduce its fiscal deficit to 3 per cent of GDP and its public debt to below 60 per cent of GDP. Once the EMU comes into being and individual currencies are abolished, the budgets of all member governments will be made in Euro, and member governments could in theory borrow anywhere in the European Union. If at that point, a certain government needs to borrow more, either to finance its fiscal deficit or to roll over its inherited debt, it will be able to do so only at higher rates of interest: in other words, different European governments would pay different rates of interest depending on how the market views their financial strength. Some would be able to borrow anywhere in the world at going rates of interest; some would eventually not be able to borrow at all, and

would have to go cap in hand to the International Monetary Fund