Europe seeks power to place weak states in 'administration'
THE EUROPEAN Commission wants the Brussels authorities to be given the power to place distressed euro zone countries in a form of EU “administration” as part of a new drive to toughen the fiscal rules behind the single currency.
In a bid to intensify the battle against the worsening sovereign debt crisis, the EU executive will publish plans tomorrow for euro countries to issue debt with a common euro zone guarantee.
The initiative, resisted for months by Germany, includes intrusive measures to radically expand the reach of budgetary oversight by the European authorities.
While the objective is to minimise the increased risk that fiscally sound countries would bear in the “eurobond” or “stability bond” system, member states would have to yield significant new powers to Brussels. So that eurobonds are always repaid, the commission suggests mechanisms to ensure the servicing of such debt always takes priority over “any other spending in . . . national budgets”.
Drafts seen by The Irish Times say a further option “would be to grant extensive intrusive power at EU level in cases of severe financial distress, including the possibility to put the failing member state under some form of ‘administration’ ”.
This implies EU officials would be given power to intervene in the execution and supervision of key national policies. The commission says the system, seen as a potential panacea to the crisis, could only be adopted if euro countries deepened the co-ordination of economic policy.
To achieve that, it suggests the EU bodies be given the power to pre-approve the national budgets of governments with high debt or deficits.
It also says the EU authorities should have powers to direct governments to correct any “slippages” during the execution of budgets, in effect reversing budget decisions.
The plan includes some of the most far-reaching proposals seen in the decades-long drive to integrate the economies of Europe and the euro zone. It comes as the debt crisis spreads deeper into core euro zone countries, with the borrowing costs of France and Belgium rising as Italy and Spain endure yet more pressure.
“This crisis is hitting the core of the euro zone. We should have no illusions about this,” said EU economics commissioner Olli Rehn.
Even before eurobonds are introduced, the commission wants euro countries to quickly synchronise the key steps in their budget process and adopt measures to intensify policy surveillance by Brussels.
At the same time, it says countries should be subjected to “enhanced” surveillance if they face severe financial disturbance.
“We need more discipline in the euro area because we know that we are in this situation today . . . because the governments of Europe did not respect their commitments,” said commission president José Manuel Barroso. “We believe that in the future it may be appropriate to have some kind of stability bonds provided – and I want to underline provided – there are appropriate mechanisms of discipline and convergence.”
Speaking after talks with Greece’s technocratic prime minister Lucas Papademos, he said the situation in that country was “extremely serious”. Greece needs an €8 billion bailout loan to avert bankruptcy next month but the EU authorities won’t pay until conservative leader Antonis Samaras signs a letter pledging to fully implement its EU-IMF plan.
On the day after the centre-right People’s Party seized power in the Spanish election, the country’s 10-year borrowing cost rose close to the “unsustainable” level of 7 per cent. Italy remained under pressure and Moody’s rating agency said recent strain could be negative for France’s triple-A credit rating.
With Belgian borrowing costs under pressure as well, the country’s 17-month-long political crisis worsened when the chief negotiator in coalition talks tendered his resignation a second time. Hungary, not in the single currency, sought further aid from the EU and the IMF.