France stymies German debt sanction plan

France stymies German debt sanction plan
Finance Minister Wolfgang Schäuble. Photo: DPA
Germany and France remain split over how swiftly the axe should fall on violators of Europe's budget rules despite an agreement Monday among finance ministers on the need to slap sanctions on errant European states.

European Union President Herman Van Rompuy said a “very large degree of convergence” emerged from a meeting in Brussels on ways to strengthen the bloc’s budget discipline following this year’s Greek debt drama.

He said ministers agreed on the need for “a credible enforcement mechanism at the EU level” with sanctions that would be “introduced at an earlier stage, be more progressive and rely on a wider spectrum of enforcement measures.”

“Whenever possible, decision-making rules on sanctions should be more automatic,” Van Rompuy said after the meeting of a “task force” which is expected to make proposals on tightening economic governance in October.

German Finance Minister Wolfgang Schäuble sent a position paper before the meeting outlining Berlin’s support for automatic sanctions for rule breakers, including the suspension of voting rights and EU development aid.

Schäuble said the EU’s Stability and Growth Pact needed “more bite” by speeding up the penalty process.

The European Central Bank also threw its weight behind the idea of “quasi-automatic” sanctions, a proposal which the European Commission will make on Wednesday.

But French Finance Minister Christine Lagarde voiced opposition to the imposition of automatic sanctions.

“France has always been favourable to a solid and credible economic governance but not for a totally automatic mechanism, a power that would be exclusively in the hands of experts,” Lagarde told reporters.

She insisted that EU states should have a strong say in any sanctions.

“The fate of a country cannot rest solely in the hands of experts,” Lagarde said.

The debate came as trade unions prepared to lead demonstrations in Brussels and other parts of Europe on Wednesday against austerity measures launched by

EU states to bring down huge public deficits.

Nearly every EU state exceeds the pact’s public 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.

ECB chief Jean-Claude Trichet warned of a constant “under-assessment” of budget problems by EU states and called for the creation of an advisory board of “wise men and women” to keep an eye on fiscal discipline.

“Indeed, a core, absolutely indispensable, element of an effective surveillance mechanism is a functioning mechanism of incentives and sanctions – both financial and non-financial,” he told EU lawmakers.

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 trillion-dollar war chest to prop up any other weak member state.

Brussels now wants to twist the arms of states that fail to curtail spending.

The European Commission is expected to propose that states with high deficits deposit 0.2 percent of their gross domestic product into an account, which could be converted into a fine if violations persist.

The fine could only be avoided if a majority of EU states vote against it.

But finance ministers disagreed on whether it should be a simple or a qualified majority, an EU diplomat 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 them into line.


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