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The Times January 2 1999 LEADING ARTICLE

Germany launched its six-month presidency of the European Union yesterday with none of the circumspection and anxiety to play honest broker that EU governments have by custom brought to this rotating task. Instead, it presented a list of German demands.

However divided internally, there is no doubt that Gerhard Schröder and his Government have abandoned the conciliatory EU posture of all previous postwar German leaders. The catalyst for this disputatious tone is the euro.

Having sacrificed the mark, Germany is claiming its rewards. And for a Government which includes such outright advocates of a European state as Joschka Fischer, the Green Foreign Minister, that means using the single currency as a goad to speed up the pace of European political integration.

This dramatic shift is going to make Tony Blair's balancing act in the EU even more difficult than Bonn and Paris have, between them, already made it. Germany's specific goals for the presidency may not all be shared, certainly not when it comes to Bonn's insistence that

other countries pay a higher share of future EU bills; but the belief that the euro necessitates far tighter co-ordination of fiscal as well as economic policies is common to the euro-ll.

The EU elite is unanimous that the euro marks a "new departure" towards political unity.

There are two good reasons for the euro-11 and the European Commission to emphasise the euro's political dimension.

The first is that it is true. British enthusiasts for the euro, anxious to play down the huge significance of surrendering sovereignty over economic policy, are alone in pretending that this great leap in the dark is all just about economics.

The second reason is prudential; after so much official bolstering of popular expectations, culminating in Thursday night's triumphalism in Brussels, a certain bathos could envelop the event itself. That is because, for most people, the euro's official launch will, confusingly,

be a non-event.

When euroland's banks reopen on Monday, the currencies that change hands will look the same. They will not be, in fact, because the worth of the coins in the pockets of hunters for sale bargains will be calculated as units of the euro. Yet the euro itself can neither be seen

nor touched; until the familiar national notes and coins disappear in 2002, its use will be limited to non--cash transactions.

It is a virtual currency. Little wonder, then, that while the heavy beat of the political drums has raised public support for the euro to an average of 66 per cent in the 11 euroland countries, a mere quarter of adults polled by the Brussels Eurobarometer claim to

understand how it will actually work.

Voters do, however, expect this untouchable currency to yield immediate benefits in jobs and growth. They will not be satisfied with the paper targets of the EU employment pact that Germany and France seek, however "quantifiable and mandatory" these are made. Rather than

free up its economy, Germany's answer is to hobble "unfair" competition elsewhere in the EU by raising corporate, indirect and even direct taxes nearer to continental levels.

Britain is the prime target, as a low-tax country which can be accused of exploiting its opt-out from the euro. In this murky dawn of the new Europe, battle lines are being drawn. What euroland needs is more, not less, fiscal flexibility.

Mr Blair's choice lies between vetoing a policy that is ruinous for the whole EU; or insisting that common tax policies are confined to euroland.

There can be no political justification for embracing the economics of the madhouse.

If Britain cannot persuade its partners of that, it may have to let them go ahead - while preserving its inalienable right to set, outside the euro, its own competitive economic course.

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