THE Franco-German summit on Monday in Nuremberg could provide political will to break the final deadlock on the rules for budgetary stability after monetary union. Commission and official sources in Dublin and Brussels are expressing growing confidence that the final details could be ironed out to allow next week's Dublin Summit to reach outline agreement on a plan to move to monetary union.
Yesterday, the German Foreign Minister Mr Klaus Kinkel said they were "close to agreement" and predicted an agreement would be possible in Dublin.
A willingness, particularly on the part of the Germans, to make a deal on the issue is likely to become evident at Wednesday's meeting of the secretive Monetary Committee and Thursday's special pre-summit Finance Ministers' meeting (Ecofin).
It would pave the way for a success at the Dublin summit for the Minister for Finance, Mr Quinn.
Leaders would then be able to put their seal on three key completed agreements: the Stability Pact, the one governing continued discipline among euro participants; the relationship in a new ERM between the ins and outs; and legislation on the legal status of the new currency.
Only one difference remains the definition in the Stability Pact of the "exceptional and temporary"circumstances in which a breach of the 3 per cent Government deficit limit would not trigger sanctions, potentially fines of up to 0.5 per cent of GDP, against the offending slate.
These exceptional circumstances - are to be defined in terms of an economy suffering a real decline in GDP, but the quantification of such a decline is deeply contentious.
A report to the summit of the Monetary Committee, which has been seen by The Irish Times, still leaves three choices of wording open following failure to agree at Ecofin last Monday:
. "If the downturn is severe, in particular in the case of significant negative annual real growth." Broadly the position of the Commission and about five member slates who prefer a degree of discretion for the Council of Ministers.
. "If there is an annual fall of real GDP of at least 2 per cent or a fall over four consecutive quarters cumulating to more than 2 per cent." The German position, although they have agreed to bring the figure down to 1.5 per cent - the proposal is to, make the claim of exceptionality as difficult as possible and the definition as automatic as possible.
. "If there is an annual fall of real GDP of at least 0.5 per cent, or if there is an annual fall of real GDP of more than 0.5 per cent which is considered exceptional in the light of further supporting evidence, in particular on the abruptness of the downturn or on the accumulated loss of output relative to past trends."
The last, around which attempts to find a compromise are now focusing, combines an automatic exception being made in respect of a recession of over 2 per cent, and allows discretion in respect of a recession between 0.5 per cent and 2 per cent.
With the French, one of the most fervent opponents of German "automaticity", now hinting they may be swilling to see figures specified, diplomats feel a deal may be possible along these lines, with some tweaking of the proposed figures.
The ministers will then turn their attention to rules governing what they should do as a Council of Ministers if the Commission defines a deficit as non-exceptional and therefore liable for sanction.
