Eurozone deficits must risk swift penalties: ECB economist

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Eurozone countries which break overspending rules must be hit with automatic penalties, the top economist at the European Central Bank (ECB) Juergen Stark said on Wednesday.

His remarks put him in line with the head of the Eurogroup of eurozone finance ministers who strongly attacked a French-German proposal to tighten the rules as being weak and unconvincing, in remarks to be published on Thursday.

Stark said in a speech delivered in Wiesbaden, western Germany: "We need more respect for the rules, and for that, to progressively introduce automatic sanctions when there is an infraction of those rules."

A copy of his speech was posted on the ECB's website.

"Sanctions must be a credible option," Stark stressed. "The debates of recent days and weeks make me doubt that all decision-makers have realised this."

On October 18, German Chancellor Angela Merkel and French President Nicolas Sarkozy struck a deal under which Berlin will not insist on automatic sanctions for countries which breach terms of the European Union's Stability and Growth Pact.

Since Greece came close to insolvency at the beginning of this year, focusing attention of deep deficit and debt problems in several eurozone countries, several key eurozone figures have spoken strongly of the need for tougher rules and tough enforcement.

"Instead of continuing to deny that membership of a currency union restricts national economic and fiscal policy, all members of the euro zone should admit the reality of the euro," Stark said.

"We need more clarity, clearly separated mandates and a de-politisation of many decision making processes," the ECB economist said.

"As long as potential sinners sit in judgment on actual sinners, it will be impossible to create any peer group pressure," he warned.

In addition to financial penalties and supression of EU subsidies, Stark said countries that breached EU rules should be deprived of voting rights at the European Council.

When the euro was being created at the end of the 1990s, Germany proposed tough, automatic fines for countries which broke the rules, but France successfully watered these down. The Stablity Pact was the result, subsequently re-named the Stability and Growth Pact.

- Dow Jones Newswires contributed to this story -

© 2010 AFP

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