Brussels to Sanction Budget Rule Breakers

The European Commission proposes to enact severe sanctions for eurozone members that are in violation of its budget rules.

While unions are preparing to protest mass spending cuts across Europe, the European Commission in Brussels is proposing to enact severe sanctions for eurozone members that are in violation of its budget rules.

Europe has been pondering tougher budget rules since the financial crisis nearly bankrupted Greece and forced other nations, including Italy, Ireland and Spain, to plunge deep in the red this summer.

The existing Stability and Growth Pact that has been in force since 1997 prescribes that eurozone countries cannot maintain deficits over 3 percent of their GDP and must keep their national debts within limits. The treaty allows members that are in violation to be fined yet throughout the euro’s eleven year history, many countries, including France and Germany, have waved the rules several times while no one dared propose sanctions.

In order to overcome governments’ unwillingness to penalize each other, the European Commission wants to empower itself with such a sanction capacity. Key is a measure to force countries to set aside 0.2 percent of their GDP whenever they run up too much debt. That amount would be converted into a fine unless the country complies with European fiscal recommendations, to be distributed among the other eurozone members. This will “give teeth to [the] enforcement mechanism,” according to the commission, “and limit discretion in the application of sanctions.”

The Commission’s proposal is dividing Europe along now familiar north-side lines. Germany and the Netherlands are strongly in favor whereas France and Italy are leading the member states of the south in protest. French Finance Minister Christine Lagarde reiterated Paris’ view on Wednesday that national governments instead of unelected bureaucrats in Brussels should have the overriding authority in any decision over fines and sanctions. France is “in favor of strengthening the Stability and Growth Pact,” she said, “but not at the price of removing all political input.”

With France objecting, it would seem highly unlikely that the northern countries and the commission will get their way. Even France recognizes that enforcement of budget rules must be improved however so a watered down mechanism will probably be agreed upon by the member states eventually.