EU outlines plan to prevent repeat of Greece-fuelled debt crisis

LUXEMBOURG: European Union governments vowed to police national budgets at an early stage and introduce a wider range of sanctions on excessive deficits to prevent a repeat of the Greece-fuelled debt crisis that has undermined the euro.

Finance ministers agreed to impose fines on countries that fail to deliver on deficit-cutting pledges even before shortfalls surpass the euro region’s limit of 3% of gross domestic product. “Up to now, you only got fined for driving through the red light of the 3%,” EU president Herman Van Rompuy said on Monday after meeting with EU finance ministers in Luxembourg. “From now on, you could also be in trouble for crossing the orange light.”

To back up the planned tightening of the rules, the ministers also said they will press ahead with deficit cuts next year, balking at US pleas for looser budget policies to help speed the recovery from the worst recession since World War II.

“We’re of the opinion that these sanctions have to kick in automatically,” Luxembourg finance minister Luc Frieden said as the meeting resumed on Tuesday.

Germany failed to push through its call for automatic sanctions in the 1990s, and no country has been fined during the euro’s 11-year lifespan. After leading the way in diluting the rules in 2005, Germany is spearheading the campaign to stiffen them again after euro governments put up as much as e860 billion ($1 trillion) to contain Greece’s fiscal crisis.

Under the revamped system, each government will present its broader assumptions for growth, inflation, taxing and spending in the spring, about six months before national budgets go through parliaments. Countries with overall debt that exceeds the EU limit of 60% of GDP would come under extra scrutiny. Proposals to strip repeat deficit offenders of their rights to vote on EU policies are off the table for now because that would require a change to EU treaties, a process that took eight years for the bloc’s current treaty.

Apart from this, European finance ministers put the finishing touches on a rescue fund being backed by e440 billion ($524 billion) in national guarantees, seeking to halt the spread of Greece’s debt crisis.