THE EUROPEAN Commission has warned the Government it will receive "no special treatment" when it breaks the rules governing the operation of the euro zone this year.
But the State is unlikely to face any fine for breaking the EU stability and growth pact if, in the medium term, it manages to bring its budget deficit back into line with the regulations.
Minister for Finance Brian Lenihan told EU economic affairs commissioner Joaquin Almunia at a weekend meeting of EU finance ministers in Nice, France that the State would breach the 3 per cent budget deficit level set out under the EU rules in 2008/2009.
He also asked Brussels to allow the Government some flexibility when it formally considers the matter in November because of the State's need to invest heavily in infrastructure.
But commission officials yesterday denied a report which said that Mr Almunia had given an "unofficial green light" to Mr Lenihan to breach the pact.
"There was a meeting with the finance minister at which Mr Almunia discussed the budget. But Mr Almunia said if there is a budget deficit it would be handled in the way foreseen in the stability and growth pact and there would be no special treatment afforded to Ireland," said a commission spokesman.
The stability and growth pact was created to ensure the smooth running of the euro currency and the wider European economy.
It commits EU states to avoid excessive budgetary deficits by keeping their budget deficit to gross domestic product (GDP) ratio below a 3 per cent limit and maintaining their debt to GDP ratio below 60 per cent.
Last week Mr Lenihan confirmed the Government would breach the 3 per cent EU limit due to a sharp deterioration in the public finances prompted by the global economic downturn. He is expected to outline an austerity plan designed to ensure that the State is in compliance with the EU regulations by 2010 when he announces an emergency budget next month.
Government sources said yesterday the meeting in Nice was "extremely positive" and there had been a very constructive position taken by the commissioner and his officials.
But a spokesman for Mr Lenihan said it was too early to talk about the EU's likely response to the State's breach of the stability pact.
"We have not even reached the first stage of an excessive deficit procedure. Any speculation would be premature," the spokesman added.
The Government will supply Brussels with its own forecasts for its likely budget deficit in 2008/2009 towards the end of September before the October budget. The commission will then make its own assessment of the Irish economy.