Friday 15 December 2017

German push for automatic euro sanctions hits resistance

Germany’s push for tough new sanctions against deficit-plagued euro-region governments ran into mounting resistance as France led the charge against automatic penalties.

Battle lines over the enforcement of deficit ceilings hardened as Europe faces an end-of-October deadline to overhaul the euro’s economic management to prevent a repeat of the debt crisis.

“A lot of member states are getting cold feet now” about proposed quasi-automatic sanctions, Dutch Finance Minister Jan Kees de Jager told reporters before a meeting of European Union finance ministers in Luxembourg today. “We need effective sanctions and they should be as automatic as possible.”

As the euro rises and bond yields in Greece and Spain slip from highs reached after the debt shock, pressure to fix the system has eased and support has grown for maintaining political control over sanctions on runaway deficits.

No country has been fined in the euro’s almost 12-year history for overstepping the deficit limit of 3pc of gross domestic product.

Greece, the trigger of this year’s debt crisis, went the whole period with a deficit over the threshold.

In an echo of the debate before the euro’s launch in 1999, the European Central Bank -- without a vote on the reshaping of the rules -- is making the case for a tighter leash on countries with lax budgets.

“More ambitious reforms are needed,” ECB President Jean-Claude Trichet said on October 16 in Marrakech. He lobbied for “greater automaticity, accelerated timelines and reduced room for discretion in procedures.”

Fiscal targets

Under European Commission proposals, countries that flout fiscal targets would have to marshal a majority of fellow euro- area governments to escape fines as high as 0.2pc of GDP.

Countries with “excessive” macroeconomic imbalances such as outsized current-account deficits would face fines of 0.1pc of GDP.

Today’s meeting is the last before an October 28-29 summit of EU leaders that is meant to sign off on the new system.

“This is now the moment of truth for the EU member states -- whether they are genuinely for reinforced economic governance or not,” EU Economic and Monetary Commissioner Olli Rehn said.


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