EUROPEAN finance ministers last night reached a long-awaited agreement on new measures to stop countries' debts spiralling out of control, with sanctions set to become "almost automatic" for states that don't conform.
The deal was announced in Luxembourg last night, as high-ranking European Commission figures expressed "confidence" that Ireland would be able to reduce its debts and budget deficit by a 2014 deadline.
Under the new measures due to kick in in 2012, countries will face sanctions ranging from fines to 'naming and shaming' if they fail to keep their debt levels and budget deficits within agreed levels.
Errant countries will have a maximum of six months to get their affairs in order, but will have just three months to correct imbalances if the case is deemed "urgent", sources in Luxemburg confirmed last night.
The timing of any sanctions was one of the key areas resolved yesterday, while European finance ministers also reached agreement on the controversial issue of how "automatic" the sanctions would be.
Some officials wanted to make the sanctions as automatic as possible, arguing that countries could be reluctant to apply sanctions to their peers if they had discretion to prevent it.
Under last night's deal, new sanctions will be carried out as per the commission's recommendation, unless a qualified majority of member states in the European Council votes against that action.
"This crisis has sharpened our mind, we have been able to make proposals which were unthinkable only a few months ago," said European Council president Herman Von Rompuy, who headed up the taskforce that agreed the measures.
He added that he was "confident" that the political agreement would migrate into legislation.
"These measures should be in place as quickly as possible," he stressed. "It is our common duty."
Jean Claude Juncker, who heads up the euro group of finance ministers, said countries agreed "on the main aspects" of how Europe's deficits should be reformed.
"The devil is in the detail, of course, and those details will become clear in the weeks and months to come," he added.
The financial scope of sanctions is not yet clear, while the non-financial penalties including 'naming and shaming' countries who ignore EC advice are also being considered.
A draft version of the proposals by the commission made detailed proposals on fines.
While the measures will be introduced in 2012, Ireland is not expected to suffer any immediate sanctions if its deficit is being reduced in line with the four-year plan set to be presented by the Government next month.
Addressing journalists yesterday, Mr Juncker said the commission was "confident" that the strategy Ireland was drawing up would be able to reduce the deficit by 2014, enabling Ireland to "return to sustainable growth based on structural reform".
His comments were echoed by EC economics chief Olli Rehn, who said Ireland, along with Greece and Portugal, would "be able to meet the targets" they have been set through "very substantial efforts in structural reforms".
The comments came amid reports from newswire Reuters that Ireland is gearing up to defend its 12.5pc corporate tax rate at today's Luxemburg meetings.
The report quoted a "high-ranking EC official" as saying he "didn't see any alternative" to Ireland raising its tax rate.
The Government has repeatedly insisted that such a move is not under consideration.