EU fiscal rules allow UK opt-out

Tuesday 15 March 2011 12:52

Chancellor George Osborne has won an opt-out from tough new rules designed to step up economic controls across Europe.

Measures agreed in Brussels today by EU finance ministers were intended to apply in all 27 member states.

But Mr Osborne successfully argued that, as Britain is not in the eurozone and is not obliged to meet existing single currency targets on debt and deficit limits, the country should not be bound by harsher fiscal rules.

The aim is to avoid repeats of the economic shock when the full scale of Greek debt was finally exposed and triggered the first massive EU-IMF bank bail-out to try to stabilise the single currency.

The state of the Greek economic crisis had been kept hidden partly by a lack of disclosure which caught the European Commission and other EU governments by surprise.

The deal agreed today sets "numerical fiscal rules" which countries must follow to ensure the transparency and effectiveness of their efforts to keep within a maximum permitted annual deficit level of 3% of GDP, and a maximum national debt of no more 60% of GDP.

Existing sanctions for breaching the limits, which do not apply to any non-eurozone country, are also toughened under today's deal.

However, the new fiscal rules to ensure that failing economic performance does not slip below the EU radar do apply to non-eurozone countries - except for the UK.

The decision copper-bottoms the independence of UK fiscal policies, averting any indirect pressure from Brussels on domestic spending and taxes.

The final wording of the legally-binding accord refers to the fact that the UK has had an opt-out from single currency rules since the landmark deal to set up the currency was agreed at Maastricht nearly 20 years ago.

It says: "The obligation to have in place numerical fiscal rules... should not apply to the UK."

Mr Osborne had been concerned at the Commission's determination to make the new rules apply to all, what one insider called "policy creep".

A Treasury spokesman said: "We got exactly what we wanted - a guarantee that Europe's new budget rules don't bind the UK Government."

One official commented: "Our message was clear - hands off our budget - and they got the message."

The UK already operates its own fiscal rules but they are not geared to the 3% and 60% targets. Instead the Government's benchmarks are to eliminate the "current structural deficit" by March 2015, and to get debt as a percentage of GDP falling by the end of this Parliament.

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