EU review of budgets agreed by ministers

EUROPEAN FINANCE ministers have resolved to submit draft budgets for the approval of their counterparts and the EU Commission before unveiling them in national parliaments.

At a meeting here late last night, the ministers agreed to impose new financial penalties on governments that flout EU budget rules. Responding to pressure on the euro following the Greek debt debacle, they also agreed to widen the scope of existing surveillance measures to compel countries with high national debts to reduce their debts.

European Council president Herman Van Rompuy, who chaired the meeting on economic governance, said there was a “strong convergence of views” on the measures required to strengthen how the EU polices and enforces budgetary rules.

The meeting followed a separate gathering here of ministers whose countries share the euro, at which they signed off signed off on the final details of a €440 billion loan scheme for distressed single currency members.

The ministers’ agreement in principle to open their budgets in Brussels before parliament marks their endorsement of a key proposal from economics commissioner Olli Rehn to strengthen budgetary coordination.

Mr Van Rompuy said the process, which is subject to the approval of EU leaders, would strengthen parliamentary scrutiny of budgets as it would put the broad parameters of the plans through a rigorous credibility test.

The review process — likely to take place in the first half of the year — would examine the “main assumptions” relating to growth, inflation, revenues, expenditure and deficit levels, he said.

On sanctions, Mr Van Rompuy said the objective was that the penalties would kick in before a country breaches the 3 per cent deficit limit which is laid down in the EU stability and growth pact. For example, he said, a country could be penalised if it neglected warnings or if their debt levels rose too quickly.

Instead of a “nuclear option” large fine at the end of a surveillance process, he said new sanctions would be more progressive.

He said the current sanctions regime, never before deployed by the European authorities, envisaged fines when “red lights” were breached. Ministers now wanted sanctions when “orange lights” were breached.

Mr Van Rompuy also said the regime will be reinforced to include competitiveness measures such as balance of payments figures and calculations for the totality of national and private debt. Whereas the prior regime examined public finances through the “keyhole” of the annual budget deficit, ministers now wanted a “bay window” view of the entire economy.

Minister for Finance Brian Lenihan said he will soon introduce legislation in the Dáil to facilitate Ireland’s participation in the €440 billion euro area support net, which will also benefit from a further €250 billion from the IMF and €60 billion from the EU Commission.

The scheme could see Ireland guarantee more than €7 billion for financial rescues.

“[Outline legislation] will be translated into concrete legislation within a matter of days and the necessary legislation will be enacted before the summer recess . . . Given the arrangements that have already been put in place for Greece, I’m confident that it will not require to be activated,” Mr Lenihan said.

He reiterated the argument that he was under no pressure to accelerate his austerity plan.

At the same euro group meeting, ministers agreed to admit Estonia as the 17th member of the single currency next January.

Anxiety about the sovereign debt crisis weighed again on the single currency yesterday. Against the dollar the euro fell to $1.1876, its weakest since March 2006, but rallied a little to trade down 0.14 per cent at $1.1956.