BRUSSELS (MNI) – The European Commission’s proposals to impose
fines on Eurozone states that break European Union budget rules might
not be popular with all members countries, European Commission President
Jose Manuel Barroso said on Wednesday.

The European Commission earlier today 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, thereby preventing a repeat
of the sovereign debt crisis that erupted earlier this year.

Under Commission proposals, sanctions for countries in violation of
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.

“These proposals may not be popular with all member states,”
Barroso told reporters at a press conference after the Commission
announced its proposals. But he added that he hoped they “will respond
decisively.”

“Debt has to be reimbursed,” the Commission president said. “A huge
public debt diverts spending from where it is really needed,” he added,
saying that national governments “are not always right.”

European Commissioner for Economic and Monetary Affairs, Olli Rehn,
said the financial crisis “has amplified and underscored” the need for
better enforcing the debt and deficit levels.

The Commission’s 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.

Carsten Brzeski, an economist at ING in Brussels, predicted that
some of the Commission’s proposals would either be scrapped or “get
watered down in some horse trading with national governments.”

He added: “Whether sanctions of 0.2% of GDP really scare off
governments from running deficits is rather unlikely. Temporarily taking
away voting rights would probably have a bigger impact.”

The Commission hasn’t proposed taking away a country’s EU voting
rights as a sanction, likely because this would require a change in the
EU legal framework set out in the Lisbon Treaty.

In its statement today, the Commission said that all the reforms it
is proposing are in line with the existing EU treaty.

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 of nearly five times the 3%
limit.

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

[TOPICS: MT$$$$,M$$FX$,M$$EC$,M$X$$$,M$$CR$,MGX$$$]