EU finance ministers meeting to leave key questions to later

WITH the European Commission yesterday beginning to set out its EMU stall for next week's Dublin meeting of finance ministers Dublin is playing down suggestions that the meeting would represent a dramatic breakthrough on the road to the single currency.

Charged with dealing with three key issues - a stability pact to provide economic discipline for the "ins", a new exchange rate mechanism to govern the relationship between "ins" and "outs", and problems over the legal status of the euro sources close to the Minister for Finance, Mr Quinn, said that the meeting could put more flesh on structures and principles that have been broadly agreed.

But they believed that, although positive, such progress at an essentially informal meeting would still leave key political questions for later resolution. It was not yet clear, they said, if proposals from the Commission informal working papers that have yet to be agreed by the college would be acceptable in detail to member states.

Ministers would also hear reports from the EU's Monetary Committee and the European Monetary Institute, the precursor to the new European Central Bank. The Stability Pact's origins lie in proposals from the German Finance Minister Mr Theo Waigel, which would have imposed automatic fines on member states if they exceeded the 3 per cent budget deficit target. Such fines are not possible under the treaty and ministers have also been reluctant to commit themselves in more than aspirational terms to Mr Waigel's hope for balanced budgets.

The Commission would suggest that states which stray over the 3 per cent deficit be given between 9 months and a year to put in place a convincing corrective programme. After that they would face financial penalties, initially in the form of interest bearing deposits, and later fines.

The fixed fines, the Commission suggested, would rise to a maximum of 0.5 per cent of GDP - 0.2 per cent for the breach of the 3 per cent target, and 0.1 per cent for each further 1 per cent. Only in "exceptional and temporary circumstances" would states be allowed to go over 3 per cent unpunished, in accordance with the provisions of the Maastricht Treaty.

The levels of such fines and the timeframe for corrective measures remain to be agreed, with the Germans pressing for a shorter time. The commission and other member states argued that it was necessary to allow enough time for parliaments to agree such measures.

There was hope that substantial progress would be made on the pact next weekend, as well as on the technical measures required to remove legal ambiguity about the continuity of contracts entered into in national currencies but carried over into EMU. The commission spokesman said that negotiations with business representatives on the issue had been extremely fruitful.

And progress was also understood to have been made on the difficult issue of the relationship between the "ins" and "outs" of the single currency.

There was broad agreement on the establishment of a new voluntary exchange rate mechanism, anchored on the euro. The width of bands and such issues as the fiscal and inflation commitments participants would have to make and the scope of the European Central Bank's discretion on intervention remain to be agreed.

Britain was also particularly concerned about suggestions that the "outs" would face restrictions on out of hours trading in the euro, a matter which the European Monetary Institute was understood to be studying closely.

In an interview with the Financial Times the Commissioner for Economic Affairs, Mr Yves Thibault de Silguy, warned yesterday of the dangers to the European economy of missing the 1999 deadline for EMU.

"If the 1999 deadline slips," he said, "there would be grave consequences." Countries would relax their efforts on budget austerity, interest rates would go up, and the Dmark would soar, he said. And he warned that slippage could also affect the EU's commitment to enlargement.