EU agrees controversial peer review of national budgets

08.06.10 @ 09:28

  1. By Andrew Willis

BRUSSELS - EU finance ministers have reached broad agreement on a controversial plan to review each others' national budgets, together with earlier sanctions for member states that break the bloc's fiscal rules.

  • Member states could now end up looking at each others' revenue and expenditure plans (Photo: ansik)

Also meeting in Luxembourg on Monday (7 June), an earlier gathering of euro area finance ministers approved the principle component of the zone's unprecedented €750 billion rescue mechanism.

Speaking to journalists after chairing his second taskforce meeting on economic governance with EU27 finance officials, most of them ministers, European Council President Herman Van Rompuy said governments had agreed to show their national budgets to each other and to the European Commission before seeking national parliamentary approval.

Originally put forward by the commission in May, the pre-vetting of national budgets by Brussels had previously met with stern opposition from a number of capitals including Berlin, London and Stockholm.

Under the new system, which still needs final approval from EU leaders, each government will present its broad estimates for growth, inflation, revenue and expenditure levels in the spring, roughly six months before national budgets go through parliaments.

Any government planning to run a deficit "will have to justify itself to its peers" on why this should be allowed, said Mr Van Rompuy, adding that members with debt levels above 60 percent of GDP would come in for even tougher scrutiny.

After the meeting, British officials underlined the primary role of national parliaments however, in an indication that precise details still need to be worked out.

Sanctions

The taskforce, set up by EU leaders in March, also agreed on the need for earlier and more "graduated" sanctions for states that break the bloc's budgetary rules - known as the Stability and Growth Pact.

The pact sets out maximum deficit and debt thresholds of three and 60 percent of GDP, respectively, with possible fines for overspending member states of up to 0.5 percent of GDP, although in practice the fines have never been levied.

In future, governments could "get into trouble" with their peers even before their deficits reached the three percent threshold, said Mr Van Rompuy.

"Up to now, you only got fined for driving through the red light of the three percent," the former Belgian prime minister told journalists. "From now on, you could also be in trouble for crossing the orange light."

Recently floated sanctions ideas have ranged from reduced EU funding to a loss of voting rights for ministers attending EU meetings in Brussels. Monday's talks primarily concentrated on financial sanctions, said Mr Van Rompuy, as non-financial sanctions would involve changing the EU treaty.

A number of EU states have raised objections to a withdrawal of EU structural funds as a form of punishment, however.

"We think that if there are to be sanctions, they should be of a universal character. It can't be, for example, taking away structural funds, because these are reserved only for some [of the poorest] EU countries," Poland's Europe minister, Mikolaj Dowgielewicz, told the Polish press agency, PAP, in an exclusive interview.

Eurozone bail-out

Earlier on Monday evening, euro area finance ministers reached an agreement on a €440 billion "special purpose vehicle" (SPV) - the main component of a massive eurozone support mechanism hastily agreed by EU leaders last month as Greece's debt crisis threatened to spread to other members of the single currency.

The SPV will be based in Luxembourg and will issue debt on capital markets, backed by individual guarantees provided by all 16 members of the eurozone. The money raised in this way can then be lent to struggling eurozone administrations, but only after a restructuring programme is agreed.

"There is no uncertainty left  ... about the ability to provide support," EU economy commissioner Olli Rehn said after the meeting, just hours after the euro currency touched another four-year low versus the dollar before gradually recovering.

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