EMU council may punish errant states

Highly sensitive plans for a European "stability council" with punitive powers to oversee the budgets of all single-currency countries will be laid before Europe's finance ministers in Dublin today.

Details of the stability council, first proposed by Germany, are likely to be seized on by British Euro-sceptics as proof that powers over fiscal policy will be handed to Brussels if the Government decides to join monetary union. The creation of the body is likely to fuel fears that Europe is back on the path towards federalism.

The plan will put Kenneth Clarke, the Chancellor, on the defensive when he joins the talks today. Despite his evident belief that Britain should join the single currency he will now face new accusations that he is prepared to cede sovereign budgetary powers.

Britain is also likely to come under new pressure in Dublin to consider joining a new exchange-rate mechanism in the run-up to the single currency.

Outlining the stability council plan last night, Yves Thibault de Silguy, the economic commissioner, said the council would have powers to fine countries, once they had joined the monetary union, should their deficits rise above the 3 per cent limit set out in the Maastricht treaty.

Debate is still continuing about the level of the fines, with Germany holding out for the toughest options and France seeking more flexibility.

The stability council would be made up of finance ministers of EMU member countries, who would take advice about how countries are managing their budgets from the European Commission.

The council would meet regularly in Brussels to "correct" budget planning of individual states, he said. Its decisions will not be subject to any vote in national parliaments but will be passed by qualified majority vote.

Britain is not alone in expressing doubts about the creation of a new European body to govern monetary union. Several other states say the proposed rules are too tough.

In another sign that Britain's partners are determined to forge ahead, Mr de Silguy confirmed that the commission is likely to approve a French manoeuvre to bring its budget deficit into line in 1997.