'Historic' EU budget pact draws flak
(BRUSSELS) - Europe thrashed out Tuesday cross-border laws to punish states that flout budgetary limits in order to avoid a future debt crisis -- but top figures lined up to criticise watered-down measures.
European Union finance ministers proposed six laws for the 17-nation eurozone intended to sharpen defences around their shared currency -- introducing financial penalties for governments that repeatedly breach collective economic targets.
However, the head of the European Central Bank, Jean-Claude Trichet, said they simply did not go far enough.
"The improvement in governance that is presently envisaged is in our opinion insufficient to draw the lessons of the crisis," said Trichet, who has repeatedly signalled over recent months his "grave concerns" about capitals' weakened commitments to revamping economic governance.
A staggering 2,000-plus amendments lodged by European Parliament lawmakers in a bid to make sanctions more automatic and less susceptible to backroom Brussels politicking may yet see the legislation tightened up between now and a June target-date for adoption.
But Brussels-based economic policy analyst Sony Kapoor of Re-Define also warned that the new approach "assumes levels of government control over economic outcomes that does not even exist in China."
With typical candour, Swedish finance minister Anders Borg said whether or not the plan works will once again be "all about implementation."
The unexpected agreement was hailed as "historic" by Gyorgy Matolcsy, the Hungarian minister who chaired the final talks on the measures after EU president Herman Van Rompuy drew up broad guidelines in a "task force" of leaders last year.
EU economic and monetary affairs commissioner Olli Rehn, who first proposed legislation in September, said the reinforcement of cross-border economic governance would be "the cornerstone" of the 27-state bloc's response to the sovereign debt crisis, which is due to be finalised by national leaders at a summit next week.
Together with a new Euro Pact, which sets out benchmarks for states across a wide gamut of indicators, "it will lead to a quantum leap for economic surveillance in the euro area," Rehn added.
When the European Commission deems a country to have breached its responsibilities to partners on annual deficits and, for the first time, cumulative national government debts, there is a six-month window for governments to take corrective action.
When sanctions are recommended by the commission, a qualified majority of states then have to vote against their imposition -- and the 27 have to explain the outcome of that vote in writing, which Rehn says means judgments will be hard to water down.
The package, which economists have long said was required to put meat on the bone of monetary union, follows huge international bailouts last year for Greece and Ireland, with Portugal and others also struggling.
Cash fines are intended to beef-up an existing name-and-shame regime, the Stability and Growth Pact originally introduced in voluntary form to counter German fears when it abandoned the deutschemark in 1999.
Europe's most powerful and populous economy, Germany was the biggest contributor to Greek and Irish bailouts together amounting to more than 200 billion euros.
The fines, initially returnable deposits if Brussels orders are carried out by countries, would ultimately be transferred into EU financial rescue funds if ignored.
Poland's Jan Rostowski lamented that the banking sector, the source of property bubbles that lay behind some of the worst of the debts in Ireland or Spain, was not covered.
"We haven't gone that extra-step... I think in three-to-five years' time, we need to come back to this."
Public debt above a widely-ignored 60-percent-of-GDP limit will now trigger sanctions if states don't bring it down fast enough, but there are exceptions.
EU economic governance: what states are willing to submit to