Santer confident summit will agree rules for EMU

AGREEMENT on the economic rules which will apply to states which are members of the monetary union is expected at the EU summit meeting in Dublin in December, according to the European Commission President, Mr Jacques Santer.

While German demands for tough rules as part of a stability pact had threatened to delay agreement, Mr Santer said, in a paper delivered to a conference in Dublin, he was confident agreement could be reached at next month's summit.

A system of "public recommendations" and financial sanctions for member states which fail to achieve required budgetary conditions will be part of the so called stability pact, he said.

Mr Santer's speech to the European Finance Convention in Dublin was delivered by the director of the Commission Representation in Ireland, Mr Colm Larkin. The conference was told that from 1999 onwards, EU member states not participating in EMU would have to submit "convergence programmes" showing their plans for achieving the budgetary conditions needed in order to participate in the euro.

The main purpose of the stability pact would be to insure the lasting budgetary convergence of the participants in the euro Mr Santer said.

"But also for the countries that can only join at a later stage, it is important that we help them in reaching the necessary conditions as soon as possible.

"It is now agreed that member states not participating in the euro will submit convergence programmes demonstrating how they intend to achieve the high degree of sustainable convergence that is necessary for participation in the euro, Mr Santer said.

Among the elements of the pact already agreed is the drafting of medium term programmes aiming for budgets close to balance or in surplus.

"Deviations from medium term targets will lead to public recommendations. Failure to take effective action in the year following an excessive deficit should lead to sanctions before the end of that year, in the form of a non interest bearing deposit."

The deposit, consisting of a fixed and a variable component, will turn into a fine if insufficient action is still not taken after two years, Mr Santer said. Final agreement on how these sanctions would be applied has so far delayed a consensus on the pact.

Mr Santer said he was convinced that agreement on a new exchange rate mechanism for those not members of the initial move to the single currency would also be reached at the Dublin summit.

"The participating currencies will have bilateral rates with respect to the euro, surrounded by relatively wide fluctuation margins, as today. There will be possibilities for more narrow links."

Currencies will be protected through unlimited interventions at the margins, subject to the prerogatives of the central banks.

Mr Santer said he also expected broad agreement on a package of legal measures concerning the introduction of the euro.

The package will be designed to give banks and other interested parties a basis on which to make preparations.

He rejected calls for delay. The European Council would decide as early as possible in 1998 which countries met the necessary conditions. No conclusions about the likely number of participants would be taken before 1998.

The sound and stable policies that will be at the heart of the euro zone are also those policies that are most conducive to growth and employment. The Irish economy in recent years is an example of this, Mr Santer said.

EMU was important for achieving growth and employment, but it also had significance for the Union's institutional development.