Germany launched the opening salvo in intense negotiations between European Union finance ministers meeting in Brussels as part of a task force looking into ways to strengthen the 27-nation bloc's fiscal discipline.
The moves to punish budget-busting nations came as trade unions prepared to lead demonstrations in Brussels and other parts of Europe on Wednesday to protest austerity measures launched by EU states to bring down huge public deficits.
In a letter to his EU counterparts, German Finance Minister Wolfgang Schäuble said he "chiefly supports" tough proposals, including fines against deficit sinners, to be unveiled by the European Commission on Wednesday.
Schäuble backed measures to give the EU's Stability and Growth Pact "more bite" by speeding up the penalty process and imposing sanctions on a "quasi-automatic" basis.
Nearly every EU state exceeds the pact's deficit limit of 3.0 percent of GDP, but the path towards penalties is long and the bloc has never imposed sanctions against any state.
Pressure to tighten EU rules rose after a massive fiscal crisis in Greece forced the eurozone to bail out Athens in May and led to the creation of a €750 billion warchest to prop up any other weak member state.
The Greek debt crisis was followed by a wave of austerity measures across Europe, which has caused discontent.
Spain, which is slashing spending to reassure the markets, is bracing for a strike on Wednesday while protests will take place in other European capitals, including 100,000 people expected in the streets of Brussels.
Despite the social unrest, Brussels wants to twist the arms of states that fail to curtail spending.
European Economic Affairs Commissioner Olli Rehn wants the sanctions to kick in semi-automatically, with penalties only avoided if a majority vote against them.
One proposal being considered by the commission would force rule-breakers to deposit the equivalent of 0.2 percent of their gross domestic product, an amount that would be converted into a fine if corrective measures were not taken, EU sources said.
Another measure would punish countries that surpass the EU's debt ceiling of 60 percent of GDP by forcing them to slash the excess by five percent each year for three years.
The commission also wants to smooth out cross-border imbalances, with sources talking of possible fines running to 0.1 percent of GDP for countries that fail to meet targets aimed at bringing up the rear.
In his letter and a position paper, Schäuble called for the suspension of voting rights and the freezing of EU development and farm aid funds for countries that fail to respect the rules.
"The creation of stronger incentives to prevent and correct excessive government deficits stands at the very core of our endeavours to enforce fiscal and economy governance in the EU," he wrote.
Schäuble and other finance ministers will air their views within the task force on cross-border economic governance chaired on Monday evening by EU President Herman Van Rompuy.
Set up by national leaders, it is due to present its own findings at a summit next month.
The panel has struggled on sanctions so far, with ideas for cutting future aid for poorer regions hitting opposition notably among ex-Communist eastern European states.
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