Strict sanctions to form backbone of EMU

SANCTIONS against states which break budgetary rules will be central to monetary union, European finance ministers agreed in Dublin this weekend.

The informal meeting reached an agreement in principle that sanctions were the only way to ensure that countries maintained fiscal discipline after monetary union. The sanctions will apply not only to those in the first wave of monetary union, but also to those remaining outside.

This theory is mirrored in proposals to ensure that countries, outside the first wave of those joining, maintain broad parity with those inside the monetary union.

"There will be a comparability between the two," Mr Quinn said. He also emphasised the advantages for Ireland in joining the system in terms of cutting the cost of the national debt.

Despite the broad agreement, the ministers failed to nail down the specifics of many of the proposals. These have now been sent back to various European committees in the hope that they can be thrashed out in time for the final formal meeting in Dublin before Christmas.

The meeting, which all participants said was successful, made "substantial progress" on three key areas, Mr Quinn said. He added that the proposals were on target to provide the Dublin Summit in December with definitive proposals which will ensure that monetary union goes ahead on January 1st, 1999.

The first sanction will be invoked under the "stability pact" which will ensure that member states maintain fiscal discipline after monetary union. The level of the fine for countries running excessive deficits has not been agreed, but there was clear agreement that there should be a fixed fine as well as a variable amount depending on the level of the transgression, Mr Quinn said.

The ministers also agreed a broad outline of the new exchange rate mechanism for those countries not in the euro. Crucially, the European Central Bank will be allowed to initiate realignments as well as refuse to intervene in support of member currencies in certain circumstances.

The third key issue was the legal basis of the new coinage - the euro. Again, no final agreement gas been reached. However, the ministers did agree on four issues, the legal name of the euro, the continuity of contracts and the one for one exchange of the ecu for the euro.

Mr Quinn also put the final nail in the coffin for extra cash for Trans European Networks - or TENS. Although formally referred back to the Monetary Committee, Mr Quinn said there had been no disagreement with the conclusions of a report out last week which recommended scrapping the extra cash.

The Exchequer will also gain to the tune of £200 million to £400 million, Mr Quinn said. This will be down to the falling cost of serving the national debt. "That would have doubled the tax cuts in the last Budget," he said.