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Europe

Commission to seek tougher budget rules for eurozone nations

Text by News Wires

Latest update : 2010-05-12

The EU Commission on Wednesday will propose stricter rules for limiting public deficits and debt for the national budgets of the 16-nation eurozone, with stiffer penalties for budgetary infractions.

AFP - In the latest move to bolster the troubled eurozone, the EU Commission will on Wednesday propose much stricter control of national budgets, with tougher penalties for fiscal indiscipline.
   
The commission, guardian of EU rules, will present its long-awaited plans for improving economic policy coordination and budgetary surveillance in the 16-nation eurozone.
   
Its prime target is to tighten up the bloc's Stability and Growth pact which sets limits for member states' public deficits and debt -- limits which are currently widely ignored as Europe struggles to emerge from the worst recession since World War II.
   
The commission wants to improve the pact's "preventative surveillance" role, reinforcing controls on national budgets, EU Economic Affairs Commissioner Olli Rehn said in the French daily Les Echos on Tuesday.
   
"It is better to create a fire brigade before the fire," he told a Finnish business paper on Monday.
   
One of the controversial main planks of the proposals is that national budgets would be examined by all 16 eurozone finance ministers who would give the green light, or not, before the plans are put to national parliaments.
   
"This is at the heart of our proposal -- a measure that we consider absolutely necessary if we want to reinfoce the economic and monetary union," Rehn told Les Echos.
   
The likes of Britain, where such a scheme would be anathema, are not affected as it would only apply to those countries which use the common euro currency.
   
However, when Rehn presented the bones of his idea to finance ministers last month, it also met with resistance from Germany, the biggest economy in Europe.
   
Joerg Asmussen, state secretary at Germany's finance ministry, stressed that any new system must not impinge on the "national prerogative in budgetary matters."
   
Little appears to have changed since then but Rehn is making positive noises.
   
"We don't want to discuss each line of a German budget," he says in comments to appear in the German daily Die Zeit on Wednesday.
   
On top of the beefed-up rules, Brussels is looking for beefed-up penalties.
   
Berlin has proposed that fiscal miscreants should forfeit certain European subsidies or voting rights at relevant EU ministerial meets.
   
The commission is considering the first option, according to an EU source, holding out the possibility of all handouts being at risk, including from the huge farming subsidies programme.
   
The current stability pact rules limit national budget deficits to three percent of Gross Domestic Product, with the threat of fines -- which have never been imposed -- for those straying above that ceiling.
   
Total debt levels should stay under 60 percent, a level which is a mere pipe dream for most EU nations who are looking to Monday's 750 billion euro (one trillion dollars) rescue package for the euro to help them through the crisis.
   
The difficulty in getting the finance ministers to effectively fine their own governments has led Brussels to consider introducing automatic triggers, leading to penalties if remedial action is not taken quickly enough when fiscal rules are breached, the European source said,.
   
"I prefer prevention to penalties ... but we must also plan for the worst.
   
"We must better encourage virtuous nations but also envisage penalties for those who don't play by the rules," Rehn told Les Echos, while ruling out the possibility of kicking a recalcitrant nation out of the eurozone altogether, an option only recently put forward by Berlin.
   
The commission is also looking at enlarging economic surveillance beyond the policing of debt and budget deficits.
   
We must "tackle the problem of macroeconomic imbalances," notably as regards competitiveness, said Rehn, adding: "We will come up with concrete proposals to create new indicators in this area."
   
Brussels also wants to set up a permanent crisis management mechanism, following on from Monday's massive rescue package which has a three-year lifespan.
  
 

Date created : 2010-05-12

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