European Commission to outline deficit sanctions plans

29 September 2010

European Commission president Jose Manuel Barroso is set to outline plans to fine countries that do not tackle their budget deficits in an acceptable manner.

The intention of the proposals is to head off any risks to the stability of the euro and prevent a repeat of the financial crisis that hit Greece.

Those nations deemed not to be managing their economy or finances properly are expected to face automatic fines under the new legislation, reports BBC News.

Any member of the eurozone which has national debt that remains consistently over 60 per cent of GDP or has a deficit higher than three per cent could face a levy.

This may cause a problem for a number of European nations - Italy, Ireland and Belgium currently all have debts higher than 100 per cent of their GDP, while almost every nation in the eurozone is running a deficit higher than the three per cent limit at the moment.

But governments will have three years to meet the standards set out in the forthcoming legislation.

The proposals are the source of tension between Germany and France, with the former backing the measures but the latter expressing concerns about them.

French finance minister Christine Lagarde has said she is uncomfortable with the idea of unelected bureaucrats being given the power to levy automatic sanctions on nations.

The potential fines are set to vary from country-to-country, but the European Commission may offer offending nations the opportunity to escape payment if they can persuade other eurozone members to repeal a levy.

Wolfgang Schauble, the German finance minister, wrote to fellow EU politicians earlier this week, urging them to back the proposals.

He said those who do not meet fiscal targets should also have some voting rights suspended and EU funding cut, reported the Financial Times.

"The creation of stronger incentives to prevent and correct excessive government deficits stands at the very core of our endeavours to enforce fiscal and economic governance in the EU," he explained.

By Asim Shah

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