–EU Commission Outlines New Set Of Sanctions, Incentives

BRUSSELS (MNI) – The European Commission on Wednesday outlined a
set of fines and incentives that it hopes will force the 16 Eurozone
member countries to adhere to the European Union’s budget rules and
prevent a repeat of the sovereign debt crisis that erupted earlier this
year.

Under the plans, sanctions for countries that break the EU’s budget
rules would become semi-automatic and the Commission, which is the EU’s
executive arm, would have the power to ask Eurozone member states for
deposits and fines.

“The stability and growth pact will become more “rules based” and
sanctions will be the normal consequence to expect for [Eurozone]
countries in breach of their commitments,” the Commission said.

The EU’s current rules, set out in the Stability and Growth Pact,
require EU member states to limit their budget deficits to below 3% of
their gross domestic product and their debt levels to 60% of GDP.

A lackadaisical attitude towards enforcement and the impact of the
financial crisis led many countries to breach these limits. Greece was
the worst offender, with a budget deficit more than four times the 3%
limit.

“To break off with past complacency in good economic times, the
monitoring of public finances will be based on the new concept of
prudent fiscal policy-making that should ensure convergence towards the
medium-term objective,” the Commission said.

Under the proposal, the Commission would have the power to take a
deposit from Eurozone countries that don’t follow prudent fiscal policy
in good times, it said. Countries obliged to make such deposits would
receive interest on them.

However, countries that actually broke the EU rules on debt and
deficit ratios and were put under the Commission’s excessive deficit
procedure, would be required to make a deposit equal to 0.2% of their
GDP, on which they would not receive the interest.

“This would be converted into a fine in the event of non-compliance
with the recommendation to correct the excessive deficit,” the
Commission said.

Interest gained by the Commission on these deposits or fines would
be distributed among Eurozone countries without excessive deficits or
imbalances, the EU’s executive arm said.

The Commission also wants to set up a “scoreboard” to monitor
broader macroeconomic imbalances across the 27-nation European Union.

It foresees a separate “Excessive Imbalance Procedure” which would
regularly assess the risks of imbalances “based on a scoreboard composed
of economic indicators,” the statement said.

“For member states with severe imbalances or imbalances that put at
risk the functioning of EMU, the Council may adopt recommendations and
open an “excessive imbalance procedure,” it said.

For Eurozone states that don’t correct their imbalances, a yearly
fine equal to 0.1% of its GDP could be imposed, the Commission said.

“The fine can only be stopped by a qualified majority vote, with
only euro-area member states voting,” the Commission said.

The EU’s executive arm said all the reforms it was proposing are in
line with the existing EU treaty.

The proposals will now have to be considered by European finance
ministers, leaders and lawmakers at the European parliament, all of whom
could ask for changes or clarifications.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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