EU agrees tougher sanctions for budget sinners

12th July 2010, Comments 0 comments

European governments agreed Monday to create tough new sanctions against countries that run excessive public deficits, including a halt of certain subsidies, EU president Herman Van Rompuy said.

"The scope of financial and non-financial sanctions will have to be widened, including in the community budget," Van Rompuy said in a statement following a meeting with EU finance ministers.

"The sanctions will have to be gradual and different options to reinforce their automaticity were discussed," he said.

Van Rompuy hosted the third meeting of a task force created in March to find ways to reinforce budget discipline in the wake of a huge public deficit in Greece that sparked a debt crisis in Europe and shook the euro currency.

The EU president said the ministers discussed recommendations made by the the European Commission, the EU's budget watchdog, to prevent a new debt debacle.

The commission has suggested that the EU should suspend farm, fishing and regional development aid to member states that violate the Stability and Growth Pact (SGP), which requires governments to keep public deficits under three percent of output.

British finance minister George Osborne, whose country is outside the 16-nation eurozone, reiterated his government's position that any sanctions should only apply to countries that are part of the single currency area.

"The UK continues to hold the view that sanctions are most appropriate for euro area Member States, for whom non-compliance with the SGP has the greatest potential externalities," Osborne wrote in a letter to the task force.

He said that "sanctions cannot apply to the UK, due to provisions in our Protocol to the Treaty."

Britain advocates a "greater use of non-financial sanctions: 'naming and shaming' can have a powerful effect," Osborne said.

Britain's new Conservative-led coalition government has presented a tough emergency budget, including tax hikes and deep spending cuts, to bring down its deficit down from 11 percent of output to 2.3 percent by 2014-2015.

Most EU states have deficits that far exceed the three percent limit.

The current rules call for sanctions against budget sinners but none has ever been imposed because the procedure to activate them is lengthy and complicated.

© 2010 AFP

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