Ireland faces future fines under EU budget rules

IRELAND and other eurozone countries will be fined in future for breaking budget rules, but the country is also facing a possible referendum as France and Germany say they want even stiffer penalties.

EU finance ministers signed off last night on the biggest change to the single currency since it’s introduction, agreeing to massively tighten oversight of each other’s economies.

The surveillance will go well beyond the current rules on keeping government deficits to below 3% of GDP and debt to below 60%.

It will also cover a host of trends, such as housing prices, labour costs and trade balances, because they should give an early indication of trouble brewing in the economy, such as housing bubbles.

The new rules are designed to protect the currency and prevent crises such as those hitting Ireland, Greece and Portugal.

But Germany, the biggest contributor to the €750 billion bail-out fund, wants more changes, and Chancellor Angela Merkel won the support of French president Nicolas Sarkozy for them yesterday.

In a joint statement they said they want to create a longer term way of handling crises in the future and tougher sanctions, including suspending a member state’s voting rights in the EU.

These will need changes to the Lisbon Treaty and both leaders said they wanted each member state to ratify the changes through their constitutional processes in good time before 2013. This could well mean a new referendum in Ireland.

Under the rules agreed last night the European Commission can recommend a country take specific action and give them a time frame in which to do it.

If they do not comply finance ministers can begin enforcing penalties that begin with the country being asked to put between 0.1% and 0.15% of their GDP into an interest bearing.

If they continuously fail to take the recommended action they can lose the total sum, which in Ireland’s case would vary from €165m to €247m.

Germany insisted that, to prevent too much political interference with the imposition of fines, the system be semi-automatic and can only be overturned by a qualified majority of member states – something which is considered to be a near impossibility.

Ireland has supported the move towards tighter regulation and a government source said: “They make sense from an Irish perspective given that they will provide a better analysis of our economy.”

Ireland has the biggest deficit in the eurozone of 32% this year and has agreed to reduce it to 3% by 2014.

The country will be expected to abide by the four-year budget strategy being finalised early next month, and will not face sanctions provided it works towards achieving the reduction.