EC chief calls for 'effective mix of carrot and stick' to control debt
European governments need to overhaul the management of the euro region and stiffen penalties for runaway budget deficits by the beginning of 2011, European Commission president Jose Barroso said.
"We have no time to lose -- I'd like to have those new rules in place by the start of next year," Mr Barroso told reporters in Brussels after meeting new Finnish prime minister Mari Kiviniemi.
Governments of the 16 euro countries are weighing proposals for peer review of annual national budgets and harsher financial sanctions for repeat offenders of rules capping deficits at 3pc of gross domestic product.
The commission, which polices the euro rules, this week proposed denying European Union farm subsidies and aid for infrastructure projects to countries that fail to bring down excessive deficits.
In what Mr Barroso called "a more effective mix of carrots and sticks" the commission also said countries that fail to meet fiscal targets could be forced to set aside money in an interest-bearing account that could be confiscated if the budget remains out of line.
Mr Kiviniemi -- on a debut trip to Brussels after taking office on June 22 -- said the penalty mechanisms "need to be clear and automatic and must not leave room for political manoeuvring."
No country has been fined for deficit violations under the euro's stability pact, which leaves enforcement up to a vote of national finance ministers. Germany is now leading calls to tighten the rules, after putting up the largest single share in an aid package worth as much as €860bn to staunch the Greece-led fiscal crisis.
German proposals for an "orderly" mechanism to deal with state insolvencies won't be part of the first measures because that would require a rewrite of EU treaties, EU Economic and Monetary Commissioner Olli Rehn said yesterday in an interview with Germany's daily newspaper 'Handelsblatt'. (Bloomberg)