Finance ministers strike deal on new EU budget rules

Oct 18, 2010, 22:28 GMT

   Luxembourg - European Union finance ministers on Monday struck a deal to toughen the bloc's budget discipline rules but left many details of the new regime to be defined later.

   Tightening the EU's so-called Stability and Growth Pact was deemed urgent earlier this year after Greece's flirtation with bankruptcy, which plunged the eurozone into a crisis and showed that the current budget rules were not sufficiently policed.

'Habemus novum pactum (we have a new pact),' Italian Finance Minister Giulio Tremonti said, expressing himself in Latin, paraphrasing the vocabulary used by the Vatican to announce the appointment of a new Pope (Habemum novum papam).

Tremonti was speaking in Luxembourg after an 11-hour-long meeting of a 'task force' of EU finance ministers, which was assigned to strike a deal on the basis of proposals put forward last month by the European Commission.

The EU-wide agreement was trailed by a grand Franco-German bargain, with Berlin bowing to Paris' insistence that EU ministers should be the ultimate judges of whether sanctions should be imposed on EU budget violators.

In return, France heeded to a long-standing German demand as it agreed to keep open the option of changing the EU treaty to give the new rules greater legal status.

'Franco-German agreement is needed to get the whole (EU) moving,' German Deputy Finance Minister Joerg Asmussen said, while the two countries' leaders displayed their unity of views at a separate meeting with Russian President Dmitry Medvedev in Deauville, France.

'The (EU) sanction procedure (for countries in debt) must be shorter and more efficient,' French President Nicolas Sarkozy said.

   'For that, we need changes in the (EU's Lisbon) Treaty,' German Chancellor Angela Merkel chimed in.

The EU's current Stability and Growth Pact stipulates that countries should keep their deficits below 3 per cent of gross domestic product (GDP) and public debt under 60 per cent of GDP, but it has routinely been flouted, especially on the debt front.

Under the new regime, countries found in breach of the pact will have to take remedial action within six months or face as-yet- unquantified EU sanctions, diplomats said.

In a nod to French demands, EU finance ministers will decide by simple majority vote whether a country has done enough to avoid punishment. Also, first-time offenders are expected to be treated more leniently than serial budget-sinners.

If found guilty of non-compliance, a country would face 'quasi- automatic' sanctions that could only be stopped if a qualified majority of EU states voted against them.

The regime, a slightly watered-down version of what the commission suggested, will initially apply to eurozone members, with a view to extend it to all EU states except Britain, which is protected by an opt-out clause.

Another key commission proposal - a specific obligation for countries whose public debt was over the 60-per-cent-of-GDP limit to reduce the amount by which they breach the target by 5 per cent a year - did not make it into the final package.

With Italy's public debt at 115.8 per cent of GDP last year, one of the EU's highest, Tremonti was relieved. In calling for a more flexible interpretation of the debt rule, he was backed by France, where debt rose to 77.6 per cent of GDP in 2009.

Diplomats said that a pro-austerity coalition, comprised of the Netherlands, the Nordic countries, Eurogroup President Jean-Claude Juncker and representatives of the commission and the European Central Bank, resisted moves to further weaken the new rules.

The political deal reached Monday was set to be formally endorsed by EU leaders at a summit October 28-29 in Brussels.

Despite his role as 'task force' chairman, EU President Herman Van Rompuy was notable for his absence when the outcome of proceedings was announced, as he avoided making any kind of public comment.