France stymies German debt sanction plan

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.

France stymies German debt sanction plan
Finance Minister Wolfgang Schäuble. Photo: DPA

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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The Euro celebrates its 20th anniversary

The euro on Saturday marked 20 years since people began to use the single European currency, overcoming initial doubts, price concerns and a debt crisis to spread across the region.

The Euro celebrates its 20th anniversary
The Euro is projected onto the walls of the European Central Bank in Brussels. Photo: Daniel Rolund/AFP

European Commission chief Ursula von der Leyen called the euro “a true symbol for the strength of Europe” while European Central Bank President Christine Lagarde described it as “a beacon of stability and solidity around the world”.

Euro banknotes and coins came into circulation in 12 countries on January 1, 2002, greeted by a mix of enthusiasm and scepticism from citizens who had to trade in their Deutsche marks, French francs, pesetas and liras.

The euro is now used by 340 million people in 19 nations, from Ireland to Germany to Slovakia. Bulgaria, Croatia and Romania are next in line to join the eurozone — though people are divided over the benefits of abandoning their national currencies.

European Council President Charles Michel argued it was necessary to leverage the euro to back up the EU’s goals of fighting climate change and leading on digital innovation. He added that it was “vital” work on a banking union and a capital markets
union be completed.

The idea of creating the euro first emerged in the 1970s as a way to deepen European integration, make trade simpler between member nations and give the continent a currency to compete with the mighty US dollar.

Officials credit the euro with helping Europe avoid economic catastrophe during the coronavirus pandemic.

“Clearly, Europe and the euro have become inseparable,” Lagarde wrote in a blog post. “For young Europeans… it must be almost impossible to imagine Europe without it.”

In the euro’s initial days, consumers were concerned it caused prices to rise as countries converted to the new currency. Though some products — such as coffee at cafes — slightly increased as businesses rounded up their conversions, official statistics have shown that the euro has brought more stable inflation.

Dearer goods have not increased in price, and even dropped in some cases. Nevertheless, the belief that the euro has made everything more expensive persists.

New look

The red, blue and orange banknotes were designed to look the same everywhere, with illustrations of generic Gothic, Romanesque and Renaissance architecture to ensure no country was represented over the others.

In December, the ECB said the bills were ready for a makeover, announcing a design and consultation process with help from the public. A decision is expected in 2024.

“After 20 years, it’s time to review the look of our banknotes to make them more relatable to Europeans of all ages and backgrounds,” Lagarde said.

Euro banknotes are “here to stay”, she said, although the ECB is also considering creating a digital euro in step with other central banks around the globe.

While the dollar still reigns supreme across the globe, the euro is now the world’s second most-used currency, accounting for 20 percent of global foreign exchange reserves compared to 60 percent for the US greenback.

Von der Leyen, in a video statement, said: “We are the biggest player in the world trade and nearly half of this trade takes place in euros.”

‘Valuable lessons’

The eurozone faced an existential threat a decade ago when it was rocked by a debt crisis that began in Greece and spread to other countries. Greece, Ireland, Portugal, Spain and Cyprus were saved through bailouts in return for austerity measures, and the euro stepped back from the brink.

Members of the Eurogroup of finance ministers said in a joint article they learned “valuable lessons” from that experience that enabled their euro-using nations to swiftly respond to fall-out from the coronavirus pandemic.

As the Covid crisis savaged economies, EU countries rolled out huge stimulus programmes while the ECB deployed a huge bond-buying scheme to keep borrowing costs low.

Yanis Varoufakis, now leader of the DiEM 25 party who resigned as Greek finance minister during the debt crisis, remains a sharp critic of the euro. Varoufakis told the Democracy in Europe Movement 25 website that the euro may seem to make sense in calm periods because borrowing costs are lower and there are no exchange rates.

But retaining a nation’s currency is like “automobile assurance,” he said, as people do not know its value until there is a road accident. In fact, he charged, the euro increases the risk of having an accident.