01/20/2012 05:31 am ET Updated Mar 21, 2012

In Latest EU Fiscal Compact Draft, Court Could Fine Nations Without Balanced Budget Rule

BRUSSELS, Jan 20 (Reuters) - The European Union's highest court will be able to fine an EU country that does not adopt a balanced budget rule in its constitution with a penalty of up to 0.1 percent of gross domestic product, the latest draft of a treaty showed on Friday.

That is a toughening of an earlier version of the fiscal compact treaty, which all EU countries except Britain could sign.

The fiscal compact is the EU's latest attempt to restore market confidence in the bloc's public finances, especially those of the 17 countries sharing the euro.

Under the fiscal compact, all those who sign the treaty must within one year introduce into their constitution, or their equivalent law, a rule that the budget deficit cannot be higher than 0.5 percent of gross domestic product in structural terms.

If it does, automatic corrective steps would kick in.

The initial versions of the fiscal compact said only that EU countries could sue one another in the European Court of Justice if they believed a country had not put the balanced budget rule into its highest national law.

Now, the draft treaty, which is likely to be discussed by EU finance ministers next week and by EU leaders on January 30, also says that if a country ignores a ruling of the court to adopt the "golden rule", a fine would follow.

"If the court finds that the contracting party concerned has not complied with its judgment, it may impose on it a lump sum or a penalty payment appropriate in the circumstances and that shall not exceed 0.1 percent of its gross domestic product," said the draft, obtained by Reuters.

The money from the fine would go to boost the resources of the European Stability Mechanism -- the euro zone's permanent bailout fund, which is expected to become operational in July.