The lack of progress imperils the EU’s goal, agreed in the wake of the eurozone’s debt crisis, to agree at the next meeting of the European Council on 28-29 October a package of reforms on enforcing fiscal discipline.

Leaders had already resigned themselves to continuing discussions after October on possible changes to the Lisbon treaty, which would supplement the initial package of reforms.

But the negotiations on the initial round of reform has become bogged down. Member states are divided over whether countries should be stripped of EU funding, including regional aid and agriculture subsidies, if they fail to adhere to rules on fiscal discipline.

They are also divided over whether member states with irresponsible economic policies should lose their voting rights in the Council of Ministers, and over whether deficit hikes incurred through pension reforms should be exempt from sanction.

“A lot of sanctions issues are still under discussion,” Brian Cowen, Ireland’s prime minister, said. “There is no agreement at this stage,” he added.

Orderly default

Another disagreement concerns whether the EU should set up a fund to help eurozone countries in crisis carry out an orderly default on their debts.

Herman Van Rompuy, the president of the European Council, has been chairing a ministerial taskforce charged with agreeing governance reforms. At today’s summit, he reported on the taskforce’s progress, or lack of it.

Van Rompuy had hoped the discussion that followed his presentation might reveal some flexibility from member states, but his hopes were disappointed.

Visegrad demands

Iveta Radicova, prime minister of Slovakia, said after the meeting that the Visegrad group of countries  (the Czech Republic, Hungary, Poland and Slovakia) were sticking to a demand that they would not suffer sanctions if pensions reforms pushed their deficits above agreed levels. They argue that, as reform of national pensions is strongly encouraged by the Commission, sanctions would be unfair. Germany however, is adamant that there should be no loopholes in the EU’s sanctions regime.

“There a risk of sanctions for countries that are serious with reforms, in opposition to those that have hidden deficits without [undertaking] reforms,” Radicova said.

“We have a real problem with this,” she added

Council voting rights

Germany, with support from France, is maintaining a push for a revision of the Lisbon treaty to allow the suspension of voting rights in the Council of Ministers for countries that are economically reckless. Other member states are strongly opposed.

Austria, Greece, Portugal, Slovenia and Spain are firmly opposed to stripping member states of EU funding – an option favoured by many other governments. 

The UK is seeking guarantees that it will be exempt from any sanctions regime. Van Rompuy said today, however, that he envisaged a “first stage” in which financial sanctions could only apply to the eurozone, followed by a second stage in which they might be extended to all member states.

“All heads of state and government want to continue the work and keep momentum,” Van Rompuy said.

But he denied that the timetable for reform was slipping.

“Next month I am sure we will draw the right final lessons from the crisis,” he added.

The European Commission will present draft legislation on governance reform on 29 September, which is intended both to guide and give impetus to the taskforce’s work. The next meeting of the taskforce will be held before that.