Bailouts only for states signing EU budget pact: draft

(BRUSSELS) - European governments will only get bailouts if they ratify a new pact to enshrine a so-called "golden rule" on mandatory balanced budgets, under the latest draft seen by AFP on Thursday.

"The granting of assistance in the framework of new programmes under the European Stability Mechanism (ESM) will be conditional, as of 1 March 2013, on the ratification of this treaty," said the draft text which is being prepared for a January 30 EU summit due to give its approval.

Negotiators working on a pact to be signed by 26 of the 27 European Union states -- with Britain the odd man out -- toughened up the pact in many respects ahead of planned talks between all 27 finance ministers late Monday in Brussels.

The document spells out for the first time that no loans will be made to governments that refuse to sign up to the pact obliging states to adhere to broadly balanced budgets -- allowing only minor deficits, and this only in exceptional circumstances.

The clause linking any rescue to a signature was a key Germamn demand -- and it directly affects Ireland, which along with Greece and Portugal, is already under bailout assistance from euro currency partners.

Irish Prime Minister Enda Kenny would normally be required to hold a referendum to approve any changes that constitute a change to the EU's core treaty which Dublin has signed up for.

But after the Irish people voted against the EU's Lisbon Treaty in 2008, with a second poll required to get it through the next year, none of Kenny's EU partners want to take that risk of getting the measure caught up.

Irish press reports say that Kenny can only determine whether a referendum is required once the text is agreed at EU level.

Verbal acceptance is expected at the January 30 summit, followed by signing at a March 1-2 meeting.

Negotiators may be giving Dublin something to work with by softening the degree of legal certainty required for the "golden rule" that France and Germany originally wanted engraved in national constitutions.

Now, the draft says that this legal inscription should be "preferably constitutional" but could also be "otherwise guaranteed to be respected throughout the national budgetary processes."

This was a key Danish demand also. Voters there rejected the EU's previous Maastricht Treaty in a 1992 referendum, as well as adoption of the euro currency in a 2000 poll.

The slight easing of the legal straitjacket on the pact's core provision is offset by a toughening of the conditions that can trigger penalties.

Returning to an earlier draft theme, individual countries would be able to take those that do not adopt the "golden rule" in a way that fully meets their EU partners' approval to the European Court of Justice.

The Luxembourg-based court could then impose a financial penalty worth up to 0.1 percent of the guilty state's gross domestic product (GDP), putting the proceeds into the ESM, the new 500-billion-euro ($650 billion) bailout fund due to enter force in July.

Germany, the biggest contributor to bailouts and a promoter of strict fiscal discipline, has insisted on handing the court a meaningful role in policing budgets.

The Dutch, meanwhile, are still pushing for sanctions to be applied where cumulative national debts grow too quickly -- not just the annual public deficits that lie at their root.

Many of the more punitive aspects of the pact currently being negotiated will only apply to the 17 states in the eurozone.

But the new draft holds out the prospect that non-eurozone countries who ratify the pact will also be invited "at least once a year" into bi-annual eurozone summits.

This was a key demand for Poland, which intends adopting the single currency some time after 2015 but wants to help shape its policies even before then.

The new head of the European Parliament -- Germany's Martin Schulz -- may similarly be invited.

The pact as it stands will come into effect once 12 adherents ratify it although some say this is not enough.