31st Mar 2020

Tougher budget sanctions to cover all EU funds

  • Close-up of euro banknote showing Greece and Italy: states that break the EU's budgetary rules could see funding from Brussels withheld (Photo: Alessandro Marotta)

EU member states that break the bloc's budgetary rules could see their EU payments withheld, including weighty farm handouts, under plans to be presented by the European Commission this Wednesday (30 June).

Current rules already allow EU cohesion funds to be withheld, although in practice this has never happened, but sources suggest the upcoming communication will seek to widen the net of potential financial sanctions to all EU payments.

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Eastern European states led by Poland have recently complained that concentrating sanctions on a suspension of EU cohesion funds, intended to boost development in the EU's poorer regions, unfairly targets less well-off countries.

By including farm payments, roughly 40 percent of the EU's €120 billion annual budget, together with varying types of structural funds, the commission proposals would greatly increase the size and scope of potential fines for member states that break the Stability and Growth Pact.

The pact limits deficits to 3 percent of GDP and debt to 60 percent of GDP, but both barriers have been breached by numerous member states, even before the financial crisis took hold.

Wednesday's text, which is still subject to changes, seeks to narrow the scope of a commission communication on European economic governance published in May, taking into account a series of member state positions that have been revealed since then.

Controversial non-financial sanctions backed by Germany, such as the suspension of voting rights for national ministers attending meetings in Brussels, are unlikely to appear in the document.

Greater emphasis is set to be placed on government debt levels, with an 'excessive debt procedure' involving suggestions from Brussels on how member states should reduce their debt piles, likely to mimic the reporting system under the current 'excessive deficit procedure'.

With the crisis leading to calls for structural economic forms, the communication is also set to list a number of macroeconomic indicators, such as the evolution of salaries, that could be used to help monitor national competitiveness levels.

States that fall behind in this area could also potentially receive a financial penalty.

The commission intends to bring forward the necessary legislative proposals this September in order to turn the suggested list of tougher budgetary measures into law.

With EU officials hoping to start a new European Semester system in the spring of 2011, under which member states would 'peer review' the main headings of each others' national budgets, the clock is ticking to complete the necessary legislative steps under the up-coming Belgian EU presidency.

A feeling that a unique window of opportunity exists at the moment is also adding to the sense of urgency, with a return to stronger economic growth likely to diminish the reformist zeal created by eurozone's fiscal crisis.

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