Euro pact rules could be forced on UK

Strict fiscal rules being considered for the eurozone in response to the sovereign debt crisis could be applied to all member states within five years, according to a draft of the pact.

The International Treaty on a Reinforced Economic Union would see countries signing up to it allowed to run deficits of just 1 per cent of GDP. That has risen from an initial proposal of 0.5 per cent but there will be stricter penalties for failing to stay within the limit. It also expands the supervisory powers of the European Commission and the European Council to include structural budget reforms and the reduction of national deficits.

The intergovernmental treaty is the legislative vehicle for new rules which the UK Government refused to back in talks with other European leaders last month.

A draft, published on the think tank Open Europe’s website, also appears to give member states and the Commission the power to bring any country not meeting the new rules in front of the European Court of Justice.

If and when it comes into force the Treaty will apply to countries within the eurozone and any member states outside the currency block which choose to sign up. But the last article of the draft suggests the rules could be forced on the others after five years.

It say: “Within five years at most following the entry into force of this Treaty… an initiative shall be launched… with the aim of incorporating the substance of this Treaty into the legal framework of the European Union.”

If the five year clause within the draft is kept, and the rules are made part of EU law, Cicero Brussels analyst Tim Gieles says the rules could be forced on the UK.

He says: “If this came to pass it would also make it binding on the UK.”

However, all-party parliamentary group on European reform co-chair and Labour MP Thomas Docherty says the wording of the clause is vital.

He says: “It says launch an initiative with the aim of incorporating the framework into EU law, which is somewhat removed from a requirement. Thankfully I am not an EU lawyer but my understanding it will need all 27 member states to agree to it to become EU law and I cannot see why the UK would do that.”

In December, Prime Minister David Cameron refused to back the Treaty because he could not gain assurances over issues relating to financial services – an area not covered in the pact. The UK is the only country that has said it will not consider signing up to the new rules.

A progress report on the drafting of the Treaty is expected on January 30, with the final text expected on March 1.