LUXEMBOURG (MNI) – European Union finance ministers reached a broad
agreement to enhance economic governance in the 27 member bloc by
reviewing each others’ national budgets and imposing earlier sanctions
on fiscal rule-breakers.

The agreement — under which national governments would submit
their projections for some key indicators to a peer review each spring
— came after a meeting chaired by European Council President Herman Van
Rompuy, who is leading a task force to improve economic coordination.

But the plan — which some countries see as an infringement on
their sovereignty — still requires the approval of EU leaders at their
summit June 17-18.

“In the spring, national budgetary plans would be presented to the
Commission and EU Member States,” Van Rompuy said. “Of course, not to be
checked in detail or to be decided upon by the European institutions…
However, the main assumptions underlying the budgetary plans, like the
levels of growth or inflation, would be examined. So would the main
aggregates, like total revenues, total spending and deficit targets.”

The European Union already has a set of fiscal rules, which limit
budget deficits to 3% of gross domestic product each year and debt to
60% of GDP. But the financial crisis and a lackadaisical attitude to
enforcement has allowed many countries to circumvent these rules,
resulting in high debt and deficit levels in many countries and market
fears that some of those countries could default on their debts.

In the past, countries were warned by the Commission only when
their deficits exceeded 3% limit.

Now, the task force envisages the Commission issuing warnings at an
earlier stage and paying more attention to the debt level, rather than
focusing only on the deficit.

“Sanctions could already kick in before the 3% threshold for the
annual deficit is trespassed, for instance if warnings have been
neglected or if the level of debt rises too quickly,” Van Rompuy said.

“To use the traffic light image: until now, you only got fined when
driving through the red light of the 3%; from now on, you could also be
in trouble when crossing the orange light,” he said.

The task force will present its findings to the European Council
June 17 and 18 and will meet again July 12 to discuss a permanent
effective financial crisis mechanism and intensifying coordination, Van
Rompuy said.

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

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