–Series Of High-Level Meetings Taking Place In Brussels

BRUSSELS (MNI) – European policymakers meet in Brussels next week
to debate new rules to rein in high debt and deficit levels across the
bloc, against the backdrop of growing investor fears that Eurozone
members Ireland and Portugal won’t be able to manage their debt burdens
alone.

The European Commission will push the region’s finance ministers to
accept new sanctions for states that break the European Union’s fiscal
rules. The sanctions would kick in automatically and could result in
financial fines, people familiar with the proposals said.

The EU’s current rules, set out in the Stability and Growth Pact,
require EU member states to limit their budget deficits to below 3% of
their gross domestic product and their debt levels to 60% of GDP.

A lackadaisical attitude towards enforcement, along with the impact
of the financial crisis, led many countries to breach those limits.
Greece was the worst offender, with a budget deficit last year more than
quadruple the 3% limit.

Ministers have been debating since May how to give the rules more
teeth, but they have made slow progress because some member states have
concerns about being policed by others and about ceding too much power
to the EU’s executive arm. European Council President Herman Van Rompuy
hopes to have a set of conclusions to present to EU leaders by
mid-October.

European Commissioner for Economic and Monetary Affairs, Olli Rehn,
will outline his proposals on the same topic to finance ministers
attending Van Rompuy’s economic task force meeting at 1600 GMT on
Monday. Rehn will then formally present the Commission’s legislative
proposals on Wednesday.

An EU diplomat said Rehn will try on Monday to persuade the finance
ministers to accept his proposal, under which member states with high
debt and deficit levels would pay deposits to the Commission to
guarantee they will address their budget problems.

The legislation, which ministers will discuss in greater detail
later in the week, would be rolled out to the 16 Eurozone member states
first, with plans to extend it to the remaining 11 EU members at a later
stage, a person familiar with the proposal said.

Under the plan, Eurozone members in breach of the EU’s rules would
deposit 0.2% of their GDP with the EU’s executive arm. This would be
returned with interest if the country managed to cut its debt and
deficit levels but would be forfeited if it failed, the EU diplomat
said.

“The Commission wants to see the sanctions kick in at a much
earlier stage and gradually build up in severity,” a second person
familiar with the proposals said.

Rehn has said publicly he wants the sanctions to be semi-automatic,
which means they would be automatically activated unless Eurozone states
voted against them. Under the current rules, the states have to vote for
sanctions in order to implement them.

The commissioner is also set to propose a “macroeconomic
scoreboard” of competitiveness levels, monitored by the EU’s executive
arm.

The Commission could issue recommendations to uncompetitive member
states under the proposals that Rehn will outline formally on Wednesday.

High levels of debt and deficit in the Eurozone have sparked
investor fears that some countries, most notably Greece, Ireland, Spain
and Portugal, could default on their debts. This has led to a widening
of the spreads on the sovereign debt securities of those countries.

After bailing out Greece to the tune of E110 billion in May and
setting up a second backstop fund worth E440 billion, Eurozone
policymakers are keen to give the EU rules more teeth, in order to avoid
similar problems from arising in the future due to poor fiscal
management.

Shortly after Rehn unveils his proposals, finance ministers and
central bankers from across the European Union will converge on Brussels
for a set of informal meetings on Thursday and Friday.

On Thursday their agenda includes debates on international
accounting, economic governance, the economic outlook and financial
markets.

On Friday the policymakers are set to discuss credit rating
agencies, supervision and regulation, and possible taxes and levies on
banks.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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