EU seeks stronger Euro management amid German doubts
European Union governments sought to strengthen the management of the euro region as Germany warned that the economic rebound is slowing its push for stiffer sanctions on high-deficit countries.
EU finance ministers weighed ideas for improving national budget management, monitoring countries at risk and imposing sanctions on rule-breakers, EU President Herman Van Rompuy said in a statement last night after leading a brainstorming session in Brussels.
“We agree on the need to have credible sanctions,” EU Economic and Monetary Affairs Commissioner Olli Rehn said.
“It’s a bit like a football game. It won’t work if the players start to discuss and argue the rules of the game with the referee every time they commit a foul.”
European markets have rallied as the Greece-fueled fiscal crisis recedes. Stocks are close to a four-week high and the euro has rebounded 7.3pc from a four-year low reached on June 7 amid concerns that Europe was awash in debt.
German Finance Minister Wolfgang Schaeuble, who at the height of the debt turmoil in March mused openly about expelling deficit-plagued countries from the euro region, said yesterday that Europe’s economic recovery is lessening the pressure to overhaul the system.
“Developments in the first half were rather good,” Schaeuble told reporters. The result is “a slight slackening of the dynamism to draw consequences.”
The euro-area economy expanded 1pc in the second quarter, the fastest pace in four years.
A 4.4pc jump in exports, the biggest in the euro’s history, led the way. Corporate investment rose 1.8pc, ending eight quarters of contraction, and consumer spending increased 0.5pc, the most since 2007.
Sweden, a non-euro member that weathered its own debt shock in the early 1990s, is disappointed with progress so far toward enacting tougher sanctions on deficit offenders, Finance Minister Anders Borg said.
“We need to be courageous before the next crisis,” Borg told reporters as the meeting resumed today. “We need to have bold steps now.”
Four months of debate over fixing the euro region’s management yielded initial results today when finance ministers completed new rules on the pre-screening of government budgets.
Dubbed the “European semester,” the system will require each country to submit rough plans for the following year’s taxing and spending and economic assumptions to the EU by the end of April.
Based on a European Commission analysis, other euro-area governments will provide their “assessment and guidance” by the end of July, according to a draft text obtained by Bloomberg News.
While the advance vetting would be a new wrinkle for the 11 1/2-year-old euro, debate still rages over how to stiffen the sanctions on countries that post deficits above the EU limit of 3pc of gross domestic product or are at risk of doing so.
While euro rules foresee fines for countries that overstep the deficit limits, no country has ever been penalised.
Rehn said he will issue proposals on September 29 that would make it harder for deficit violators to escape punishment by forcing them to cobble together a majority to defeat a sanctions proposal.
The talk now is of “quasi-automatic” sanctions, after countries such as France indicated they would demand a vote before any country is penalised.
The debate has echoes with the setting of the rules in the 1990s, when Germany failed to push through its call for automatic penalties.
The nature of the penalties also remains to be hashed out. Spain, a leading recipient of EU infrastructure subsidies known as “structural funds,” said countries that fall afoul of the rules shouldn’t have that money taken away.
“We think we need to be very careful about structural funds,” Spanish Economy Minister Elena Salgado said. “Economic sanctions and penalties are already included in the stability pact.”
EU leaders aim to outline the new system by late October.