–Adds Details on Joint Proposals, Stress Tests, Consolidation

PARIS (MNI) – France and Germany have agreed on a series of
proposals to strengthen the EU’s fiscal Stability Pact, including
tougher financial sanctions, the finance ministers of the two countries
said Wednesday.

“This is a key moment where we agree jointly, together, to propose
specific measures to strengthen Europe,” French Finance Minister
Christine Lagarde said after a meeting with her German counterpart,
Wolfgang Schaeuble. “It’s our way to express our determination to share
the same ambitions, to insist on the stability and unity” of the EU and
the Eurozone in particular.

The proposals, to be presented to the task force on economic
governance headed by European Commission President Herman Van Rompuy,
include, an “interest-bearing” deposit to be “temporarily imposed” on
countries lagging in budget consolidation.

Further leverage could come from the withdrawal of voting rights or
of EU structural and regional aid “proportionate to the extent of
non-compliance” with the Stability Pact, according to a paper
distributed by the ministers to the media. Such sanctions should be
imposed “rapidly.”

Government budgets should be examined in advance and surveillance
of economic policy extended to include “implicit liabilities” in pension
and health care systems, private debt, gaps in competitiveness and
structural reforms.

Acknowledging that some proposals for sanctions would require an
amendment of EU treaties, Schaeuble suggested that Eurozone members
could agree to accept them “voluntarily” in the meantime.

Schaeuble called the response of financial markets to EU measures
to deal with the sovereign debt crisis “encouraging,” but he cautioned
that, “we still have a long way to go.” He rejected criticism that
Germany intended to impose its austerity program on the Eurozone,
stressing that there was also agreement with France on the need for
“growth-friendly deficit reduction.”

Indeed, both ministers underscored the broad basis of the
Franco-German policy accord. Lagarde noted that Schaeuble had also met
with the French president and prime minister during his visit and had
taken part in the government’s weekly Cabinet meeting — a “first” for
France.

Concerning the release of bank stress tests results this Friday,
Lagarde reiterated that she was “confident in the capacity of French
banks to pass their exam successfully.” However, “for the rest, we must
be patient” until Friday.

–Paris newsroom, +331-42-71-55-40; stephen@marketnews.com

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