EUROPEAN finance ministers failed to agree on a pact to control public spending after countries enter monetary union in 1999.

The finance ministers of all 15 EU member states and their central bankers agreed the broad outline of their plans to punish countries which failed to keep their fiscal policies under control, but failed to agree on the specifics.

The pact, first proposed by German finance minister, Mr Theo Waigel, proposed fines for countries which failed to keep their budget deficits under 3 per cent of GDP. However, there has been disagreement over the exact size of the fines as well as on the get out clause of "exceptional and temporary circumstances".

The Germans have been pushing for a tough system with countries being fined up to 2.5 per cent of GDP for a breach of the pact. However, the European Commission, backed by all other EU states, has proposed a slightly watered down version.

Both versions have now been referred back to the monetary committee in the hope that a middle way can be found before the final Ecofin summit in Dublin at the end of the year.

Without such a pact, overspending by one Euro member state could undermine the stability of the currency and drive up interest rates. Under the broad agreement reached this weekend, countries will face sanctions if their deficit exceeds 3 per cent of GDP unless they take immediate corrective action or they are facing exceptional and temporary circumstances.

It has been agreed by all member states that the circumstances must be defined but there is still disagreement over how tightly.

Germany is pressing for a precise formula with the figures. However, the Commission is in favour of a less tightly defined definition without precise figures.

It has also been agreed that the fine would be a non interest bearing deposit. The country will then have two years to put corrective action in place. If this is not done the deposit will be turned into a fine.