EU ministers gather to talk new rules for economy

Jul 13, 2010, 2:29 GMT

Brussels - Finance ministers of the European Union's 27 member states agreed Monday to toughen policing of one another's economic policies but did not say how they intend to punish bad behaviour among their peers.

   Since the beginning of the year, Greece has teetered on the verge of bankruptcy, and markets have warned that Spain, Portugal, Italy and Ireland could follow. EU states are keen to impose new discipline on one another to prevent such crises in the future.

The financial 'task force' agreed that 'greater attention must be paid to debt,' said a statement from EU President Herman Van Rompuy, who chairs the panel.

Current rules stipulate that debt should not represent more than 60 per cent of EU states' gross domestic product (GDP), but the provision was regularly ignored, while more attention was paid to annual deficit levels, which are supposed to stay within 3 per cent of GDP.

The rulebook fell by the wayside over the last year, as the global economic slump sent deficits soaring in almost all EU countries.

Currently, 25 out of 27 of them have been told by the commission they are in breach of EU budget rules, with only Estonia and Sweden having avoided the rap.

In the future, 'more ambitious budgetary targets' will be imposed on heavily indebted countries, Van Rompuy said, with infringement procedures being triggered earlier.

However, EU states appeared short of an agreement on the question of how to add bite to the sanctions regime against those who break the rules.

'The broad outlines of a reform ... were discussed,' Van Rompuy said.

The European Commission suggested in June that countries should face cuts in EU regional and agricultural aid if they fail to get their finances into shape.

EU ministers remained vague, with Van Rompuy saying that all members concurred on the need 'to enlarge the scope of financial and non-financial sanctions, including the EU budget.'

'Sanctions must be progressive, and different options to strengthen their automaticity were discussed,' he said.

Ahead of the talks, diplomats said that British Chancellor George Osborne wrote to his counterparts to remind them that Britain - which is not a member of the euro - must remain excluded from any EU- mandated sanctions.

More progress was registered on other fronts, with Van Rompuy reporting that all agreed on a scoreboard mechanism to keep divergences in competitiveness in check.

The task force is expected meet again in September, to discuss among other things how to set up a permanent rescue system for eurozone states that run into Greek-style trouble.

The question is also set to be tackled at a special meeting of the Eurogroup on September 7 in Brussels, the chair of the panel of eurozone finance ministers, Jean-Claude Juncker, told reporters.

In early May, finance ministers approved a 750-billion-euro (950- billion-dollar) safety net for eurozone states but agreed that it would only last three years.

A final report from Van Rompuy is foreseen in October. EU leaders are expected to approve reforms on the basis of the task force's recommendations.