Can EU really deliver on promises to enforce eurozone rules? (Feature)

By Alvise Armellini May 4, 2010, 4:08 GMT

Brussels - Greece's bail-out has been accompanied by a chorus of assurances that no country in the eurozone will be allowed to fall into the economic mess that landed Athens in trouble and made it a burden to its neighbours.

But as the European Commission prepares for May 12, when it is expected to propose tighter eurozone economic surveillance and coordination, and European Union President Herman Van Rompuy is working on even more stringent rules, the mind races back to 2004.

Back then, a newly-elected Greek conservative government admitted to its EU partners that its socialist predecessor had fiddled with the country's deficit figures, telling them they were much higher than previously reported.

A commission report established that despite joining the single currency in 2001, Greece had never, from 1997 onwards, respected the 3 per cent of gross domestic product (GDP) limit that was meant to underpin membership of the eurozone.

'We must do everything possible so that such instances do not arise in the future,' the EU's economy commissioner, Joaquin Almunia, said at the time.

EU finance ministers, on their part, recognized that Greece's past deceptions were 'unprecedented and very serious, particularly as regards the overall credibility of the multilateral surveillance framework.

But then they failed to act.

A proposal from the commission to give the EU's statistical arm Eurostat audit-type powers to reduce the risk of Greek-style cooking of the books was rejected in 2005, because national governments thought it would infringe too much on their sovereignty.

In same year, EU leaders approved a softening of the Stability and Growth Pact - the document which meant to ensure fiscal discipline within the eurozone - bowing to pressure from France and Germany, which risked being sanctioned for not keeping within the pact's rules.

So Germany, the country which in recent months complained the most about having to bail out Athens, actually contributed to Greek profligacy by pursuing a relaxation of rules that were meant to guard against it.

Last October, Greece presented its eurozone partners with the same trick that shook them five years previously, and which was meant not to happen again.

The incoming socialist government of Prime Minister George Papandreou's said its deficit was almost four times higher what the outgoing conservative administration had reported to be, sending markets into panic and spurring a belated EU bail-out response.

The bloc's current economy commissioner Olli Rehn, hailing from fiscally conservative Finland, admitted in April the Greek crisis exposed a problem of 'compliance' within the eurozone.

One of the remedies he suggests is to let eurozone finance ministers peer into each others' spending plans before presenting their budgets in parliament, so that unwise policies can be crossed out before they are adopted.

That, however, sounds much like the 'horizontal assessment of national budgetary developments and their implications for the euro area as a whole' that euro countries pledged to in 2005, at the time of watering-down the Stability and Growth Pact, but never implemented seriously.

Rehn insists that the EU's Lisbon Treaty, which entered into force in December, gives him 'plenty of room' to push for the necessary changes.

But the truth is that he needs the backing of EU governments for his proposals to be enacted, and the first signs are not encouraging.

Even Germany, despite all its protestations that a new fiscal discipline has to be instilled within the eurozone, has shown no appetite for being told how to run its economy.

'There is no question of touching on national budgetary prerogatives,' German Deputy Finance Minister Joerg Asmussen said at a meeting last month with EU counterparts.