Economic penalties plan fails

ATTEMPTS by the French to make the payment of structural funds to EU member states conditional on their economic good behaviour, particularly on the currency front, have been blocked inside the Commission, The Irish Times has learned.

The French hope had been to impose tough new disciplines of financial penalties on the countries which remained outside the first group moving to the single currency, particularly those prone to devaluation.

The Commission will next Tuesday agree a "communication" on the issue, which rules out any change in structural fund regulations in advance of the 1999 launch of the single currency.

It also says any discussion of such ideas will have to await the conclusion of the Inter Governmental Conference next year when the Commission will be presenting its budget for the 2000-2004 period.

The Commission will also reject the French idea of Brussels paying the structural funds in the devalued currency of the offending country. Not to use the ECU for such payments, the Commission communication argues, would only complicate unnecessarily the transition to the single currency.

The communication will be a substantial blow to the ambitions of the French and their Commissioner, Mr Yves Thibault de Silguy, and provide substantial reassurance to both the commissioners for cohesion countries, including the Irish commissioner, Mr Flynn, and the Regional Affairs Commissioner, Ms Monika Wulf Mathies.

The communication will be issued in the name of seven commissioners, including the latter two, whose cabinets are understood to have fought hard on an inter-cabinet working group to remove the conditionality from the original proposals.

At the March Verona meeting of finance ministers, the French Finance Minister, Mr Jean Arthuis, asked the Commission President, Mr Jacques Santer, to report from the Commission on the possibility of linking structural fund payments to macroeconomic convergence.

The French are keen to see countries which devalue against the franc penalised for doing so.

But traditionally, structural funds have been paid without strings attached, and any attempt to introduce conditionality was bound to enrage those particularly dependent on them the cohesion countries, including Ireland. And although Ireland would be unlikely to be a target for such penalties, the Government has always opposed such measures.

The Commission communication will warn that any attempt to penalise countries for devaluing could risk hurting countries which were in fact trying to stabilise their economies and that devaluation was not necessarily a policy decision or a consequence of financial irresponsibility.

The paper argues that the objectives of economic and social cohesion are, in the end, broader than nominal convergence and that penalising countries in this way could also impair their ability to catch up.

And the Commission will warn bluntly that "the main recipients of structural funds are regions and social groups, like the unemployed, who should not be further, penalised".

Not surprisingly, the paper is now being supported enthusiastically by the cabinets of the cohesion countries although, in its original form, supported by the De Silguy cabinet, it made a strong case for conditionality.