Budget rules change 'unacceptable'
IT is not acceptable that France and Germany should have decided between them on new budgetary rules for the eurozone and then forced them on the other 14 members, a leading German MEP said in Dublin yesterday.
Wolf Klinz, who chairs the European Parliament's Special Committee on the Financial, Economic and Social Crisis, said the move was reminiscent of the decision by President Chirac and Chancellor Schroeder to ignore the Stability and Growth Pact when their deficits went above 3pc of GDP.
"I think it will prove to be not a very productive decision," he said at the Institute for International and European Affairs.
The Franco-German agreement before a meeting of eurozone finance ministers last Monday drew unprecedented criticism from ECB president Jean Claude Trichet.
It overturned a plan that would have seen sanctions imposed automatically on countries in deficit, in favour of the existing system where two thirds of ministers must vote for sanctions.
"There are two things we must have -- automatic sanctions and a system under which eurozone countries can renegotiate their debts, so that all the costs do not fall on taxpayers. That would change behaviour," Mr Klinz said.
He believed current conditions threatened the social fabric of Europe. "There is 10pc average unemployment, but it is 20pc among under-25s -- and 40pc in some countries, like Spain."
Mr Klinz, who is a member of the Free Democrat party, criticised the German banking regulators for the problems of some German banks with operations in Dublin.
"They showed no interest, for example, in the Special Purpose Vehicle established in Dublin by the state-owned Sachshausen bank. They did not ring their Dublin colleagues and say they should take a look at this."
The parliamentary committee recommended that member states should co-ordinate budgetary policy and open their books to each other to help prevent future budget crises.
"It was always clear that we needed more of a European handle on economic, fiscal, and even social policies. We are not talking about harmonising tax rates, but there is a case for harmonising tax bases, whether on corporation tax or VAT.
"This will change the role of national parliaments. Naturally, they are not too keen. We have to convince them that more co-ordination is in the interests of everybody," Mr Klinz said.
Those lending to governments should bear some of the cost if things go wrong. But a European system for debt default or renegotiation would require treaty changes.
"That means unanimity -- and referendums in some countries," Mr Klinz said.