€150m fine if Ireland fails to ban deficits

IRELAND will face fines of about €150 million if it fails to implement a law banning government deficits under the new draft treaty to be discussed by finance ministers in Brussels on Monday.

A clause insisting that the balanced budget rule be put into the Constitution has been watered down, and so the likelihood of a referendum on the new treaty has been considerably reduced.

However, EU law expert Dr Gavin Barrett warned that whether people would be asked to vote depends on the Attorney General’s advice to the Government, and on the outcome of any challenge in the courts.

“There are no guarantees,” he said.

General changes to the EU treaty are allowed under the Constitution, but since this fiscal treaty is an inter-governmental one, it is not necessarily covered in this way. However, much of it, including how the rules it lays down are to be implemented, come under the EU treaty and this reduces the likelihood of a referendum, Dr Barrett said.

“It now depends on how much stress the attorney general puts on legal certainty whether he advises the Government they must hold a referendum or not.”

Anybody can challenge the Government’s decision, as Sinn Féin has already said it will do in order to force a referendum. However, it would then be up to the courts to decide if the issue should go to a vote.

Civil servants and lawyers have completed the technical work on the 4,000-word document and the final decisions will be made by the politicians, beginning with eurozone finance ministers.

The ECB is expected to push for tighter rules to prevent countries growing their debt as well as their annual budget deficits. It has succeeded in toughening up action against euro countries by insisting that they can be fined for not implementing the rules and taking the necessary action to change the direction of their finances.

Any country can refer a euro member to the European Court of Justice if it believes the nation is failing to meet its commitments, and can refer it back again if it does not act on the court’s ruling. If found guilty the country faces a fine of up to 0.1% of its GDP.

The ECB and some other budget hawks may also try to limit the scope for a country to ignore the balanced budget rule. In earlier drafts the only excuse for doing so was if a country suffered a major natural disaster. Now, the exceptional circumstances include periods of severe economic downturn and events outside the control of the government. However, the reaction must not threaten the euro.

It is doubtful if the wording on putting the debt brake into national law will change. Currently it reads that it will take force, “through provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be respected throughout the national budgetary processes”.

This allows for it to be passed by the Oireachtas.

The draft makes it clear that any country that does not ratify the treaty by the middle of next year will not get money from European Stability Mechanism, the new bailout fund expected to come on line in July.