EU adopts tough line over budget rules

(LUXEMBOURG) - EU governments finally adopted a new sanctions package to make deficit and debt limit rules stick Tuesday, with Cyprus and Belgium immediately in the European Commission's sights.

The new laws on cross-border economic governance will allow EU Economic Affairs Commissioner Olli Rehn to impose penalties on European Union states that repeatedly break shared commitments on debt and deficit ceilings.

The laws will be applied using recommendations drawn up according to yardsticks that include the EU executive's bi-annual economic forecasts, covering everything from growth to unemployment.

The measures will come accompanied by recommendations from Brussels and will be enforced, officials said, after years when many member states simply ignored the directives.

"But now these new tools have bite and (Economic Affairs) Commissioner (Olli) Rehn has said he will use them," his spokesman Amadeu Altafaj said.

He did not say which countries would definitely face the threat of sanctions but named "Cyprus and Belgium" as examples of those who could be at risk if they do not make significant adjustments to their public finances within the next couple of months.

"It depends on the forecasts but this is a significant step forward when it comes to the preventive arm" of the bloc's stability and growth pact, he said.

The pact was supposed to limit annual budget deficits to three percent of Gross Domestic Product and cumulative public debt to 60 percent.

Belgium's public debt is hovering near 100 percent of GDP. An incoming government being set up by premier-to-be Elio Di Rupo in coming weeks is mulling a budget for next year based on an annual deficit target of 2.8 percent.

Under draft state budget proposals for 2012 announced in September, Cyprus is seeking to reduce its fiscal deficit next year to 2.3 percent from an expected 6.0-6.5 percent in 2011.

ECONOMIC and FINANCIAL AFFAIRS Council (provisional version) - Luxembourg, 4 October 2011