EU takes step to punish deficit sinners

(STRASBOURG) - The European Union moved closer on Thursday to toughening budget rules to punish overspenders after the EU Parliament and governments reached a compromise to prevent future debt crises.

Governments that run excessive public deficits could face financial sanctions under the deal, although the measures would not be so strict as some European MPs had hoped.

Poland, which holds the EU's rotating chairmanship, said that a "package of compromise proposals" was agreed after "fruitful" discussions between the parliament, the European Commission and EU governments late on Wednesday.

The deal on the set of legislations, known as the "six-pack," will be presented to European Union finance ministers meeting in Poland on Friday for their approval, the statement said.

The European Parliament is expected to vote on the package by the end of September

"If the set of those proposals is approved by both the European Parliament and the (European) Council, the agreement on the economic governance package will be reached," said Polish Finance Minister Jacek Rostowski.

The bid to reinforce budget rules comes as EU finance ministers will seek to resolve divisions over a new rescue package for Greece, which was already bailed out once before last year.

Under the "six-pack" deal, countries running excessive deficits will have to deposit money in blocked accounts, which would be used to levy fines if deficit rules are violated.

The voting system would be revamped to make it easier to punish profligate governments, while nations could face sanctions if they get too close to deficit limits and refuse to take measures to stop over-spending.

The overhaul of the EU's Stability and Growth Pact, which has failed to stop countries from breaking deficit and debt ceilings, was proposed by the European Commission after the Greek debt crisis erupted last year.

Few countries in the 27-nation bloc respect the rules, which limit public deficits to 3.0 percent of gross domestic product and debt levels to 60 percent of GDP.

The parliament has asked for the axe to fall automatically on nations violating the rules, but governments insisted on having the last word on such decisions.

The two sides found a middle ground, leaving some Euro MPs unsatisfied. Privately, EU officials say the governments should have accepted a tougher line to convince markets that mistakes of the past would not be repeated.

The parliaments conservative group, the European People's Party, hailed the agreement as a "quantum leap in economic governance."

"The compromise agreement reached makes it possible to lay solid foundations of economic governance," said French EPP member Jean-Paul Gauzes.

The Socialist bloc, however, said the deal amounted to an "austerity package" that fails "to provide a lasting solution to Europe's economic and social crisis."

"It fails to provide any incentives for growth and jobs," said Germany's Udo Bullmann. "This could actually make things worse for the European economy which is facing the risk of recession."