EU ministers sign off on tougher budget rulesWROCLAW, Poland — The European Union's 27 countries overcame a year of infighting to agree Friday to tougher budget rules that make it easier to punish overspending governments and seek to restore faith in the region's ability to keep its finances in order.
By: By Gabriele Steinhauser, The Associated Press, The Jamestown Sun
WROCLAW, Poland — The European Union's 27 countries overcame a year of infighting to agree Friday to tougher budget rules that make it easier to punish overspending governments and seek to restore faith in the region's ability to keep its finances in order.
Polish finance minister Jacek Rostowski said his EU counterpartes approved the measures at their meeting in Wroclaw, Poland, where the ministers were under international pressure to show some progress in their fight to contain the debt crisis.
Although the new rules will not ease immediate market concerns about debt, they are a first indication that Europe's states are willing to give up some sovereign powers to bolster longer-term confidence in the region. The year-long delay and the complicated voting procedures that define the final deal, however, suggests more progress will be hard to come by.
Under the new rules, it will be easier to put sanctions on governments that breach the EU's limits on debts and deficits, because in most cases a state would have to rally a majority of governments to stop the punishment. That is a reversal of powers, since until now, a majority was necessary to impose sactions. Governments that are found to ignore warnings that they risk breaking debt rules can also be punished.
In the years before the current crisis, many European states — including Germany and France — had broken the EU rule requiring deficits to be kept below 3 percent of gross domestic product. Experts say that the lack of accountability has helped cause the rise in government debt that is currently afflicting the region.
The eurozone ministers are under intense pressure to find solutions to the debt crisis that has hobbled their 17-nation currency union for almost two years.
U.S. Treasury Chief Timothy Geithner's presence at the informal meeting — the first time for an American Treasury chief — was an indication of the international pressure building on European officials to fix their crisis and keep it from hurting the global economic recovery.
In particular, calls have been growing louder for the 17 eurozone countries to coordinate their fiscal and economic policies much more closely to avoid similar crises in the future and more importantly to assure financial markets of the endurance and unity of the currency union.
However, the struggle over the new budget rules, which dragged on since the European Commission proposed the new legislation in September 2010, has raised doubts that eurozone states would be willing to give up national sovereignty and move more decision-making power to central authorities such as the Commission, the EU's executive.
The European Central Bank had been particularly critical of states’ attempts to preserve powers to stop sanctions, saying initially that even the original proposals from the Commission were not tough enough.
On Friday, however, ECB President Jean-Claude Trichet gave a more positive assessment. “I don't say that it is perfect,” he said of the compromise deal. “But it is a very significant improvement.”
Trichet added that in the medium-term, further steps were necessary to make sure that governments maintain healthy economies and tax and spending policies.
The deal on the budget rules, which is expected to be passed by the full European Parliament later this month, was one of the few achievements of the finance ministers’ gathering.
Earlier in the day, the ministers had resisted pressure from others, including Geithner, to boost their bailout fund and delayed a decision on a vital aid payment to Greece until October.
Fears that Greece will soon default on its massive debts — and the impact this would have on eurozone banks, big economies like Italy and Spain as well as the global economy — have rocked financial markets in recent weeks.