Sparks fly in Belgium as Rehn makes move on budget plan

Sat, Jan 7, 2012, 00:00

EU ECONOMICS commissioner Olli Rehn has deployed new powers to seek additional budget measures from Belgium’s government, sparking tension with an administration which took office only one month ago.

Having repeatedly warned that he will not hesitate to intervene in national economic policy if he finds fault with a government’s budget, Mr Rehn asked Belgian finance minister Steven Vanackere on Thursday to produce new savings of up to €2 billion by Monday morning.

The commissioner’s move went down badly with the Belgian government, which came to power after 18 months of post-election stalemate.

While ministers played for time, Mr Rehn’s manoeuvre is seen as a taste of things to come as the Europe move in the face of the debt crisis to toughen the enforcement of EU budget rules.

Talks are under way to tighten fiscal discipline via a new international treaty but Mr Rehn sought the new measures under a “six-pack” of laws enacted last year to strengthen Europe’s discredited stability and growth pact.

Governments broke the old pact with impunity, prompting a push for more intrusive budgetary oversight. The new laws give Mr Rehn the power to ask for additional steps earlier in the budget process and, in the case of persistent non-compliance, to ask EU finance ministers to impose sanctions against errant governments.

Belgium has pledged to achieve a budget deficit of 2.8 per cent of gross domestic product this year but the commissioner said the budget would deliver a 3.25 per cent deficit. “Against this background, as the first-best solution, if the Belgian government were to adopt in the coming days measures of a structural nature amounting to at least 0.3-0.5 per cent of GDP (about €1.2-2 billion), this would allow us to conclude for the moment . . . that Belgium has undertaken the required fiscal effort,” Mr Rehn said.

Mr Vanackere disputed Mr Rehn’s assessment, saying new measures were not on the immediate agenda. “We want to show that with the budget makeup of December, we will be able to cut the deficit to less than 3 per cent,” he told reporters.

“I’m sure that we will have to take important political decisions in February, but that’s not what’s on the agenda right now in January.” Mr Rehn called in November for new budget measures from Belgium, Cyprus, Hungary, Malta and Poland. The commission will review their response next week.