EU struggles to close ranks against deficit offenders

Sep 28, 2010, 9:22 GMT

   Brussels - European Union finance ministers remained at odds Monday over ways to tighten the bloc's spending and borrowing rules to prevent a repetition of Greek-style crises, officials said.

Ministers, who are trying to come up with proposals before an EU summit in late October, met two days before the EU's executive, the European Commission, was expected to lay out its own vision of how the EU should enforce budget discipline.

According to documents seen by the German Press Agency dpa, EU economy commissioner Olli Rehn is due to call for 'quasi automatic' sanctions for states with excessive spending, deficits or debt levels.

That struck a chord with Germany, traditionally the EU's most fiscally conservative state.

'The creation of stronger incentives to prevent and correct excessive government deficits stands at the core of our endeavours to enforce fiscal and economic governance in the EU,' Finance Minister Wolfgang Schauble wrote to EU colleagues ahead of Monday's talks.

But his French counterpart, Christine Lagarde, warned that her country would say 'no' to 'completely automatic' mechanisms and giving 'experts exclusive power' over governments' fiscal policies.

Lagarde said it was 'indispensable' for politicians to still have their say over EU deficit infringement procedures, but denied any specific Franco-German rift over the issue.

EU President Herman Van Rompuy, who chairs the finance ministers' 'task force' meetings on the new budget rules, said that Monday's talks revealed 'a large degree of convergence.'

Diplomats said all agreed that the EU should no longer focus solely on government deficits falling under the 3-per-cent-of-gross- domestic-product (GDP) level, but also enforce a previously ignored 60-per-cent threshold for government debt.

Van Rompuy said that the principle of 'more automatic' sanctions was endorsed, with ministers even recognizing that the German- sponsored possibility of cutting EU money for fiscal miscreants should 'be introduced as soon as possible.'

But Rehn's post-meeting assertion that there was 'broad and strong support for the principle' of more effective sanctions betrayed a lack of consensus over the details.

France argued that the commission's suggestion - for sanctions to apply automatically to budget offenders unless a qualified majority of EU states veto the action - should be watered down.

   'A simple majority would be more appropriate,' Lagarde said.

Italy was said to be concerned about the extent of the sacrifices likely to be imposed on highly indebted countries, with commission proposals expected to force Rome to shave more than 8 percentage points off its 118-per-cent debt-to-GDP ratio over three years, or face a hefty 3.2-billion-euro (4.3-billion-dollar) fine.

Spain took issue with plans to penalize countries whose competitiveness is slipping or whose growth was based on 'excessive imbalances,' such as the credit boom, which laid the seeds for the Baltic countries' economic downfall.

   'In some cases, macroeconomic imbalances are not dependent on government actions, so I think we have to discuss this a bit more,' Spanish Finance Minister Elena Salgado said.

   Poland and other former communist EU states were also quibbling, asking for the cost of painful pension reforms to be deducted from their debt figures.

   Current rules, which do not take those reforms into account, appear 'simply unjust in terms of assessing the situation,' European Central Bank President Jean-Claude Trichet conceded, as he spoke earlier Monday in the European Parliament.

Germany, meanwhile, is insisting on draconian measures. In a separate paper, also seen by dpa, Schauble's ministry reiterated its call to temporarily exclude fiscally-reckless states from EU decisions.

   The proposal is opposed by most other countries, because it would likely force the bloc to revise its internal rulebook, a process that took almost 10 years last time it was attempted and was concluded only in December with the adoption of the Lisbon Treaty.

The introduction of a 'transition period' before the new budget rules kick in and the differential treatment reserved for EU countries outside the eurozone, for whom sanctions do not apply, were other stumbling blocks on Monday, diplomats said.