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25th Jun 2022

Van Rompuy task force agrees need for budgetary sanctions

  • French finance minister Christine Lagarde with Herman Van Rompuy, EU council president (Photo: Council of the European Union)

European Council President Herman Van Rompuy and EU finance ministers kicked off negotiations on greater economic co-ordination on Friday (21 May), with participants agreeing the "task force" should concentrate on four main objectives.

While all members stressed the preliminary nature of the talks, agreement was reached on the need for tougher penalties for states that repeatedly break the EU's budgetary rules, known as the Stability and Growth Pact.

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"There was a broad consensus on the principles of having sanctions, financial sanctions and non-financial sanctions," said Mr Van Rompuy who chaired the meeting.

A European Commission ideas paper presented last week discussed the option of withholding EU funding for budgetary laggards, while a German proposal for Friday's meeting suggested repeat offenders should have their voting rights in the council of ministers suspended.

Together with the need for a sharpening of budgetary discipline, participants agreed measures should be implemented to reduce divergences in national competitiveness levels, said Mr Van Rompuy.

The body's final recommendations, due in October, will also look at the establishment of a permanent crisis mechanism to help states struggling with their public finances, together with measures to strengthen "economic governance", needed "in order to be able to act quicker in a more co-ordinated and more efficient manner".

"Our final agreement should result in a stronger economic cohesion within the union. This is vital for 27 countries with a common internal market and for a zone of 16 countries sharing a single currency," Mr Van Rompuy told journalists after the meeting.

One proposal which has been attributed to the European Council president, the transfer of some national member state debts to a common "community" debt, appeared to receive little support from finance ministers.

A German proposal "for orderly state insolvencies" also does not appear to have gained much support, despite the fact that the question of debt restructuring is uppermost in the minds of many investors, in particular holders of Greek bonds.

To change, or not to change the EU treaties

The need for an EU treaty chance to bring about the measures for greater economic co-ordination in Europe have been prominent in the debate this week. German Chancellor Angela Merkel is strongly in favour of the idea, concerned that any new measures could be in breach of the German constitution and result in legal challenges.

France has pushed for quick action however, arguing that time is short. Both sides played down the rift on Friday, saying nothing was being ruled in or out at this stage.

"We all agreed on a proposal made by Madame Lagarde ...that we will discuss actions in the current framework and we will discuss measures that may also need a treaty change," said German finance minister Wolfgang Schaeuble.

The next meeting of the taskforce, which includes ECB president Jean-Claude Trichet and EU economy commissioner Olli Rehn, will be on the 7 June.

Mr Schaeuble denied that Germany had gained the upper hand in the negotiations by presenting a nine-point plan at the meeting listing German desires. Describing his proposal as a "contribution", the minister said Germany was "very interested in others as well".

French finance minister Christine Lagarde also softened her tone, brushing off questions about Germany's decision this week to ban certain financial practices such as naked short selling, a move that drew criticism due to its unilateral nature.

A brief discussion between the finance ministers on the topic is understood to have taken place, together with an update on the current state of play for a €440 Special Purpose Vehicle which will make up part of the eurozone's recently agreed stabilisation mechanism.

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