EU ECONOMICS commissioner Olli Rehn will today propose tough new sanctions against countries which flout European budget rules, measures likely to include a suspension of some agricultural and other funding for errant governments.
With markets again under pressure in advance of the withdrawal tomorrow of a one-year liquidity scheme by the European Central Bank (ECB), Mr Rehn hopes to secure early agreement from EU finance ministers for tougher measures. Although the EU’s existing budget rulebook includes the possibility of fines, such penalties were never imposed even as governments breached budget guidelines set by Brussels as a matter of routine.
Bruised by the Greek debt debacle and threatened sovereign debt contagion in the wider euro zone, the European authorities now want to toughen the regime.
While German chancellor Angela Merkel still wants changes to the EU treaties to suspend voting rights when finance ministers meet, the punitive measures Mr Rehn is proposing and incentives for governments to meet their budget targets lie within the ambit of the treaties as they stand.
The proposals today will go further than when Mr Rehn first suggested a fundamental reform of the EU Stability and Growth Pact last month, a plan which included the submission of draft budgets to Brussels before national parliaments.
The ministers are discussing reform plans in a special group chaired by European Council president Herman Van Rompuy, who has suggested a suspension of EU cohesion funding as a way of penalising rule-breakers.
This, however, was seen to discriminate against poorer member states as they are the beneficiaries of cohesion funds and such funds do not go to large, wealthy states.
Thus Mr Rehn’s plan will set out the eventual possibility of suspending some disbursements from EU funding generally, the idea being to allow for equal treatment in the punishment regime. A further measure would be for governments to be compelled to make interest-bearing deposits with the European Commission if their budget plans are deemed inadequate.
Anxiety about the strength of the banking system surfaced again yesterday as investors fretted about a potential liquidity shortfall in the financial system, as European banks repay €442 billion one-year ECB loans under an emergency liquidity scheme which expires tomorrow.
The ECB is keeping open emergency liquidity schemes for short-term money. But its decision not to extend the one-year window has angered banks in Spain, where interbank lending is frozen.
Madrid metro workers went on strike yesterday in protest at a pay cut, while police fired tear gas at protesters in Athens as minor clashes broke out at the fifth major strike this year by Greek unions.