States may have to get EU approval for budgets

THE GOVERNMENT could be forced to seek advance approval for its budgets as part of controversial plans by the European Commission to drive stronger “economic governance” across Europe.

Plans to have national budgets approved in advance by other European governments to avert excessive deficits met a cool reception from finance ministers meeting in Madrid at the weekend.

Although euro zone monetary policy is united, fiscal policies differ, and some countries – notably Greece – have run into trouble during the global crisis with budget deficits exceeding 10 per cent of gross domestic product (GDP) helping to weaken the euro.

Olli Rehn, economic and monetary affairs commissioner, outlined the “peer review” proposal, which will be presented in full on May 12th. He proposed “a systematic and rigorous assessment of national budgets before they are presented to national parliaments”, leading to “remedial actions” if necessary.

Jean-Claude Juncker, the Luxembourger who chairs the euro group, supported the idea.

“It makes sense to discuss among the finance ministers the broad lines of the budget before these budgets are introduced in the parliamentary procedure,” he said, denying this would diminish the rights of national assemblies.

Other member states, however, immediately poured cold water on the possibility of restricting or supplanting national sovereignty over budgets. Elena Salgado, the Spanish finance minister, said there was no question of European ministers voting on the national budgets of other countries.

“They are not going to substitute the decisions made by national parliaments,” she said. “Nation states are complicated and budgets are complicated.”

Joerg Asmussen, Germany’s deputy finance minister, also rejected the idea of diluting national control of budgets. It was “quite clear that national budget authority has to remain unrestricted, although we are obviously subject to the rules of the stability and growth pact”.

This euro zone stability pact – a widely abused agreement that was supposed to limit annual budget deficits to 3 per cent of GDP – is the existing, imperfect framework for co-ordinating Europe’s fiscal policies, and some of the more fiscally rigorous northern EU states are in favour of strengthening it.

Ireland’s budget deficit is on track to be around four times this limit in 2010, the Economic and Social Research Institute (ESRI) said last week.

Meanwhile, a mission of European officials and the International Monetary Fund (IMF) to Greece to make arrangements for a potential aid deal has been delayed by the volcanic ash cloud, the Greek government said yesterday.

The mission, which had been scheduled to begin this morning, has been postponed until Wednesday at the earliest. – (Financial Times/Reuters.)