France, Germany split on automatic EU budget fines

27th September 2010, Comments 0 comments

France and Germany clashed on Monday over proposals to slap automatic fines on European Union states that stubbornly break the bloc's debt and deficit ceilings.

Germany and the European Central Bank threw their weight behind proposals to be presented by the European Commission to toughen up budget rules with "quasi-automatic" fines for states with high public deficits and debts.

But French Finance Minister Christine Lagarde poured cold water on the plans as she arrived in Brussels for a meeting of a task force led by EU President Herman Van Rompuy to strengthen the 27-nation bloc's fiscal discipline.

"France has always been favourable to a solid and credible economic governance but not for a totally automatic mechanism, a power that would be exclusively in the hands of experts," Lagarde told reporters.

She insisted that EU states should have a strong say in any sanctions.

"The fate of a country cannot rest solely in the hands of experts," Lagarde said.

In a letter to his EU counterparts, German Finance Minister Wolfgang Schaeuble said he "chiefly supports" European Commission plans to tighten the rules.

Schaeuble said the EU's Stability and Growth Pact needed "more bite" by speeding up the penalty process and imposing quasi-automatic sanctions.

The debate came as trade unions prepared to lead demonstrations in Brussels and other parts of Europe on Wednesday against austerity measures launched by EU states to bring down huge public deficits.

Nearly every EU state exceeds the pact's public deficit limit of 3.0 percent of GDP but the path towards penalties is long and the bloc has never imposed sanctions against any state.

ECB chief Jean-Claude Trichet warned of a constant "under-assessment" of budget problems by EU states and called for the creation of an advisory board of "wise men and women" to keep an eye on fiscal discipline.

"Indeed, a core, absolutely indispensable, element of an effective surveillance mechanism is a functioning mechanism of incentives and sanctions -- both financial and non-financial," he told the EU parliament's economic affairs committee.

Pressure to tighten EU rules rose after a massive fiscal crisis in Greece forced the eurozone to bail out Athens in May and led to the creation of a trillion-dollar war chest to prop up any other weak member state.

The Greek debt crisis was followed by a wave of austerity measures across Europe, which has caused social discontent. Despite the unrest, Brussels wants to twist the arms of states that fail to curtail spending.

The European Commission is expected to propose on Wednesday sanctions that would kick in quasi-automatically, with penalties only avoided if a majority vote against.

Countries breaking the public deficit rules could face fines of up to 0.2 percent of their gross domestic product.

Another measure would punish countries that surpass the EU's debt ceiling of 60 percent of GDP by forcing them to slash the excess by five percent each year for three years.

The commission also wants to smooth out cross-border imbalances, with sources talking of possible fines running to 0.1 percent of GDP for countries that fail to meet targets aimed at bringing them into line.

Schaeuble also called for the suspension of voting rights and the freezing of EU development and farm aid funds for countries that fail to respect the rules.

"The creation of stronger incentives to prevent and correct excessive government deficits stands at the very core of our endeavours to enforce fiscal and economy governance in the EU," he wrote.

© 2010 AFP

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