European leaders reject concern over sanctions

EU LEADERS have rebuffed concern in the European Central Bank (ECB) over the weakness of new sanctions to penalise states who violate the union’s budget rules, saying they will seek top-level approval for the measures at a summit next week.

As ECB chief Jean-Claude Trichet let it be known he is unhappy with a ministerial deal on Monday to retain a large element of political discretion over sanctions, European Council president Herman Van Rompuy and German chancellor Angela Merkel defended the new arrangements.

The summit is likely to hear criticism of the deal, which has disappointed Nordic EU members and the Netherlands. Certain EU leaders are also likely to oppose Franco-German demands for changes to the EU treaties to introduce further reforms, a move that horrifies officials in Dublin and other capital cities.

The deal on new budget rules – agreed in Luxembourg on Monday by a taskforce of ministers chaired by Mr Van Rompuy – was watered down at the last minute after Dr Merkel backed demands from French president Nicolas Sarkozy to weaken the quasi-automatic nature of sanctions against rule-breakers.

In return, Mr Sarkozy backed Dr Merkel’s push for treaty changes to facilitate the suspension of EU voting rights from governments that persistently breach deficit and debt limits and the creation of an “orderly insolvency mechanism” to enable distressed euro zone governments renegotiate parts of their debt.

Mr Trichet, who called for stronger measures from economics commissioner Olli Rehn than those weakened at the Luxembourg meeting, wants tougher budget rules including sanctions that leave little political leeway. He has also been a consistent opponent of insolvency measures.

The proposals would impose sanctions only six months after a warning and there is greater scope for ministers to halt such a process than Germany first wanted.

Recognising Mr Trichet’s concerns, Mr Van Rompuy had to insert a footnote into the final version of the report from his task force. The footnote read: “The president of the ECB does not subscribe to all elements of this report.”

His spokesman insisted, however, that Mr Van Rompuy would bring the package as agreed to next week’s summit of EU leaders. The aim is for heads of state to signal approval to the arrangements.

“If Germany and France didn’t agree on things, there wouldn’t be a global accord. If there is a proposal between Germany and France, it makes a global accord possible. It’s not enough but it is necessary,” the spokesman said.

Dr Merkel, who faces a backlash from her government partners for accepting a dilution of the sanctions, said the taskforce produced a good document. She reiterated her demand for further reforms.

“What was agreed between Germany and France should also be agreed at the European Council,” she said. “This means that we get a clear mandate in order to make changes to the contract.”