EU Commission eyes tougher budget discipline rules

* Budget offenders may face cuts in EU aid

* More surveillance intended to prevent new crises

By Marcin Grajewski

BRUSSELS, April 14 (BestGrowthStock) – The European Union executive
plans to give more teeth to repeatedly breached rules on budget
discipline and increase economic surveillance across the bloc to
avoid any repeat of the fiscal crisis suffered by Greece.

The European Commission said on Wednesday it would propose
new measures next month to prevent build-ups of budget deficits,
public debt and economic imbalances.

“We need to deepen surveillance to address economic
imbalances and competitive divergences,” European Economic and
Monetary Affairs Commissioner Olli Rehn told a news conference.

“The latest developments in the European economic area, not
least around Greece, have shown a pressing … need to reinforce
policy coordination in the euro area and in the European Union
as well,” he added.

The Commission’s initial ideas will be discussed by EU
finance ministers in Madrid on Friday and Saturday.

Key ideas are to sharpen the EU’s Stability and Growth Pact,
which is supposed to keep member states’ budget gaps below 3
percent of gross domestic product, and to give the Commission
more power to scrutinise governments’ economic policies.

Greece’s deficit swelled to 12.7 percent of GDP last year,
forcing euro zone members to offer a standby aid package to ease
fears the country might default and lift tensions in the single
currency area.

Rehn said that among options being discussed was a plan to
strip repeated budget offenders of part of the EU aid they
should receive under a ‘cohesion fund’.

“We should consider how we better use existing instruments.
We should also consider whether … certain penalties would be
effective to rein in deficits,” he said.


He reiterated the EU needed a permanent aid mechanism for
countries in trouble such as Greece, but he brushed aside a
German view that this would require changing the EU’s treaty, a
process seen as hard to achieve.

In response to suggestions that EU laws should allow for the
possibility of throwing countries out of the euro zone, Rehn
said this would also require a treaty change and would be
against the principles of the EU’s founding fathers.

A Commission source said on Tuesday that another idea under
review was to look at the level of a country’s national debt
when deciding whether it should face what is known as the
excessive deficit procedure, which can lead to fines.

So far, the Commission has launched the discipline procedure
only against countries that have exceeded the deficit ceiling of
3 percent of GDP, though no fines have ever been imposed.

The Commission is also expected to propose deepening and
extending economic surveillance in the EU to try to prevent any
build-up of imbalances, such as loss of competitiveness by some
Mediterranean countries in the bloc.

Diplomats say Britain could oppose any more intrusion by
Brussels’ institutions into member states’ economic policies
while poorer EU countries from central and eastern Europe may
oppose any plans to cut aid funds.

Investing Research

(editing by John Stonestreet)

EU Commission eyes tougher budget discipline rules