Written Answers. - Studies on Single Currency Suitability.

Donal Moynihan

Question:

39 Mr. Moynihan asked the Minister for Finance the nature and extent of the studies which will commence into the problems involved in the tightening of multilateral supervision of countries' convergence programmes and in creating additional sanctions for those ill-disciplined countries in view of the proposed single currency. [8478/96]

In autumn last year. Germany tabled proposals for a "Stability Pact" between member states participating in European Monetary Union. The proposals were aimed at ensuring that strict budgetary discipline is maintained after the formation of European Monetary Union. The rationale behind the key proposals was that in favourable economic periods, member states should aim for budget deficits considerably lower than the 3 per cent of GDP reference value in the Treaty on European Union, in order to ensure that deficits do not exceed 3 per cent even in unfavourable economic circumstances. The Stability Pact, as proposed, by Germany, included proposals for financial penalties to be applied to a member state which breached the 3 per cent figure in the planning or implementation of its budget.

The German proposals for the most part give substance to existing general provisions in the Treaty aimed at ensuring fiscal discipline and close co-ordination of economic policies by member states. Work is ongoing to determine the extent to which the substance of the German proposals can be accommodated within the Treaty. Article 104c of the Treaty provides for an annual examination of each member state to see if it meets the deficit rules laid down in the Treaty and for penalties where a member state in breach of them persists in failing to take corrective measures. These penalties include inviting the European Investment Bank to consider its lending policy to the member state concerned, requiring the member state to make a non-interest-bearing deposit with the Community until the excessive deficit situation is remedied and imposing fines of an appropriate size. Article 103 requires member states to pursue economic policies as a matter of common concern, requires the Council to set out broad economic guidelines for the economic policies of the member states and the Community, and provides for multilateral surveillance by the Council of economic developments in member states in order to ensure sustained convergence of economic performances.

The Madrid European Council in December examined the Stability Pact proposals and noted the European Commission's intention to present, in 1996, its conclusions on ways to secure budgetary discipline and co-ordination in European Monetary Union in accordance with the procedures and principles of the Treaty.

At Verona there was broad agreement that member states will have to operate below the 3 per cent reference value in normal economic conditions in order to allow a sufficient margin against the possibility of an economic downturn, and that member states should, therefore, aim for a medium-term orientation of fiscal positions well below 3 per cent. Ministers also agreed that a deficit orientation would be sufficient and there was no need to specify a debt value stricter than that already provided in the Treaty. Finally, most member states, including Ireland, were agreed that the proposed Stability Pact, including possible sanctions for breach of the Treaty excessive deficit procedure should be concluded within the provisions of the Treaty.
Further work is now being carried out at official level. Essentially this work will concentrate on to what extent the existing multilateral surveillance mechanisms should be strengthened in order to ensure that member states remain below the 3 per cent reference value in the Treaty during all stages of a normal economic cycle and to identify risks to this target at an early stage so that preventative action can be taken; and on making clear how and in what circumstances the sanctions provided for in the Treaty should be applied, so that these matters are as far as possible settled in advance of particular cases arising. It is envisaged that progress will be reviewed again by EU Finance Ministers prior to the Florence European Council in June.