Budget sanctions

The European Union needs to penalize members who break the bloc's rules on borrowing and spending, according to statements made by top EU officials on Monday.

Speaking to the European Parliament's economic affairs committee, European Central Bank President Jean-Claude Trichet warned that current oversight on EU states' budgets is too lax, and called for a board of "wise men and women" to watch over budget discipline.

"What has been lacking is some kind of incentive to manage finances responsibly," Trichet said. "Indeed, a core, absolutely indispensable, element of an effective surveillance mechanism is a functioning mechanism of incentives and sanctions - both financial and non-financial."

Under the EU's Stability and Growth Pact, member states must keep their budget deficits within three percent of gross domestic product. But several member states - most notably Greece - have flouted the rules, leading to a decline in the EU's credibility.

Sanctions to be quick and 'semi-automatic'

Trichet's comments support a proposal by European Economic Commissioner Olli Rehn to impose "semi-automatic" sanctions against such EU members who break budget rules.

The European Commission is to lay out the details of its enforcement plan on Wednesday. Reports say Rehn would propose fines of 0.2 percent of GDP for countries who repeatedly fail to comply with financial rules.

In addition, countries with slipping competitiveness or whose growth is based on "excessive imbalances" like the credit boom in the Baltic states would receive fines of 0.1 percent of GDP.

"Sanctions... need to be triggered early enough in the process so that they are essentially preventive," Rehn said Monday. "This is very important in order to ensure fiscal discipline, and sustainable growth in the EU."

Germany advocates harshness

Germany, traditionally one of the most fiscally conservative EU members, weighed in on the enforcement plan with Finance Minister Wolfgang Schaeuble writing a letter to his counterparts in the EU.

"The creation of stronger incentives to prevent and correct excessive government deficits stands at the very core of our endeavors to enforce fiscal and economy governance in the EU," he wrote.

Germany's proposals have been some of the most draconian in the bloc. Schaeuble also called for the sanctions to affect payments from the EU's substantial regional development and agricultural funds, and his office is reportedly considering supporting the exclusion of fiscal rule breakers from EU decision making.

Meanwhile reports said Italy, France and Spain - which would all have to make significant reductions to their already-reduced budgets - were likely to oppose the new sanctions.

Author: Andrew Bowen (dpa/AFP)
Editor: Matt Zuvela