Economic rules row sours euro meeting

A DISPUTE in the European Commission yesterday oar the enforcement of economic stringency after the introduction of the single currency soured the otherwise straightforward adoption of a major series of proposed regulations on the euro.

The row reflects disagreements between the fiscally conservative Germans and others over the automatic nature of fines on those euro member states who do not observe financial disciplines.

The Commission approved three packages of draft regulations guaranteeing the legal status of the euro; regulating the relationship between the "ins" and "outs" by establishing a new exchange rate mechanism system and toughening supervision of economic programmes; and laying down the rules of a stability pact to maintain economic discipline in the euro zone.

In doing so the Commission is simply putting in legal form the agreements reached, or nearly reached, by the informal meeting of Finance Ministers in Dublin only weeks ago.

The texts will be submitted again to ministers and then the heads of government at the Dublin summit in December for final approval.

But elements of the proposals remain controversial. Attempts yesterday by the Commissioner for Economic Affairs, Mr Yves Thibault de Silguy, and the Commission's President, Mr Jacques Santer, to specify precisely the conditions under which fines would be not be levied - to reduce the "political" element of any fine decision - were thwarted by an broad alliance of commissioners led by the British and the French.

The Maastricht Treaty provides that breaches of the 3 per cent government deficit limit are only acceptable if "exceptional and temporary", otherwise leading to potential sanctions, including fines, under the excessive deficit procedures.

Such circumstances are supposed to refer to major events outside the control of members states or to unusual cyclical downturns in growth. The Germans have suggested that in attempting to implement the provision a specific reference should be made to negative growth in excess of 2 per cent. Others say that a figure is entirely arbitrary and takes no account of national differences.

Originally the Commission was to propose no specific fire but Mr de Silguy sought to meet German concerns by including yesterday in is proposal a reference figure of 1.5 per cent.

To the surprise of most a vigorous debate ensued led by Commissioners, Mr Kinnock, Mr Brittan (both British), Mr Creyson (France), and Mr Van Miert (Belgium).

The Irish Commissioner, Mr Padraig Flynn, is understood not to have opposed the de Silguy proposal which, sources say, is considered straightforward by the Minister for Finance, Mr Quinn.

Despite strong support from Mr Santer, Mr de Silguy was forced to back down after a three hour debate and to restore the original text.

The issue is likely to reemerge at next month's Finance Ministers meeting which is supposed to finalise preparations for the Dublin summit. However diplomats were beginning to speculate yesterday, that final agreement on the stability pact might not be possible by then.

Agreement on the legal status of the euro is now certain - specifically on the one for one conversion with the ecu, the continuity of legal contracts, and procedures for rounding conversions.

Yesterday, Mr Santer said that the move would help to reassure the markets by giving absolute certainty to contracts.