As Owen noted earlier, the proposed EU treaty will include automatic sanctions for member states that break the rules on borrowing. The new fiscal accord includes a requirement for states to curb structural deficits (those that remain even when growth has returned to normal) at 0.5 per cent of GDP and for "more intrusive control" of taxing and spending by governments that breach the existing deficit limit of 3 per cent. However, it will also include a loophole allowing the deficit limit to be waived in "exceptional circumstances" such as deep recessions or natural disasters.
Which is just as well, since, as the table below (from Charles Wyplosz of the Graduate Institute in Geneva) shows, of the original 12 members of the single currency, 10 have exceeded the deficit limit of 3 per cent since 1999. Germany has been in breach of the limit for five of the last 13 years, while France has been in breach for seven.
In addition, Greece has broken the rules every year (which goes some way to explaining its current travails), Portugal in ten of those years and Italy in eight. Indeed, every original euro member except Luxembourg and Finland has overborrowed at some point. If history is any guide, the rules will prove more "flexible" than they look.