Balanced budget 'golden rule' rare in Europe

30th August 2011, Comments 0 comments

All European Union member states must keep their budget deficits to a strict limit but most have failed the test and so Germany, Europe's paymaster, has laid down the gauntlet by adopting a "golden rule" on keeping the books balanced.

Under a constitutional requirement, the German government must ensure that there is no budget deficit -- the shortfall between revenues and spending -- from 2016 and France and Italy say they intend to adopt a similar rule.

Spain approved a debate Tuesday on such a provision as the eurozone countries all try to put their finances in order to escape the wrath of the markets for those that do not.

Here is a summary of the major economies that either have or plan a constitutional change to make balanced budgets compulsory.

- Germany: The government, anxious to lead other eurozone countries onto the right path, adopted a debt correction programme in 2009 at the height of the global financial crisis. The law requires that from January 2016, the government must not run an annual budget deficit of more than 0.35 percent of Gross Domestic Product -- compared with the current EU limit of 3.0 percent. The limit can only be breached in exceptional circumstances, such as natural disasters or a major economic crisis.

- Spain: Spanish lawmakers voted overwhelmingly Tuesday to launch a fast-track debate on a controversial reform of the constitution to cap future budget deficits, with a vote due on Thursday. The ruling Socialist party and main opposition conservative Popular Party bridged bitter rivalry to back the proposed reform in an unexpected accord ahead of November 20 general elections.

- France: Lawmakers voted through adoption of a budget limit on July 13 and it now needs to go to a vote in the full parliament where it needs a 60 percent majority to pass. The opposition Socialists, with one eye perhaps on next year's presidential elections, have said they will vote against. French President Nicolas Sarkozy will decide later this year whether to put the reform before both houses of parliament.

- Italy: In July, Finance Minister Giulio Tremonti expressed the hope of a constitutional change but so far no formal proposal for change has been submitted, even as the government adopts ever tougher austerity measures to bolster the public finances.

- Britain: There are no formal provisions on the budget deficit but former premier and finance minister Gordon Brown set the aim of balancing the finances over a 10-year period during 1997-2007. His self-imposed 'golden rule' was abandoned during the global financial crisis when the public finances collapsed.

- Switzerland: Debt levels have been regulated for the past 10 years, forcing the government to match revenues to spending. Temporary exceptions are allowed at times of crisis.

- Portugal: The government elected earlier this year to replace the Socialists has talked of opening a debate on limiting the budget deficit but the proposal seems to have made little progress. The president has expressed doubts about the reform and no debate in parliament has been set on the issue.

- Ireland: Bailed out to save it from default on its debt, like Portugal and Greece, Dublin has no 'golden rule' in the constitution.

- Greece: There is no provision in the constitution regarding budget limits. The finance ministry has noted that if the EU were to adopt such a provision, it would automatically apply to Greece.

- Netherlands: The finance ministry says it could adopt an adminstrative ruling on the budget but the country has no intention of altering the constitution.

- Belgium: No change planned.

- Poland: The constitution states since 1997 that the budget must be balanced and that total accumulated debt must not exceed 60 percent of GDP, in line with the EU limit.

© 2011 AFP

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