France clashes with Germany over “semi-automatic” sanctions for overspending governments

By Raf Casert, AP
Monday, September 27, 2010

France balks at automatic budget sanctions

BRUSSELS — France clashed with Germany and the European Central bank on Monday, rejecting any proposal that would punish European Union nations with near-automatic sanctions if they fail to keep their debt and budget deficits within limits.

Instead, French Finance Minister Christine Lagarde said governments still should have the overriding say in any such decision.

She dismissed the idea that a member nation could be reprimanded and penalized for budget excesses by unelected experts alone.

Earlier, EU Monetary Affairs Commissioner Olli Rehn said he will propose on Wednesday for member states to be punished early for spending their way into trouble.

He insisted sanctions decisions could only be undone by a large majority of member states. France insists that a simple majority should suffice to decide on sanctions.

“The fate of a country cannot be left in the hands of experts alone,” Lagarde said as she entered a meeting of top EU finance officials to shape a new set of rules for the euro aimed at preventing another crisis like the one which almost brought the euro currency to its knees this spring.

Greece borrowed its way to the verge of bankruptcy, shaking the foundations of the euro and leading to speculation the currency bloc might break up. The shared currency has rules limiting deficits to 3 percent of economic output, but those rules have been widely ignored.

The panic has eased but officials are still searching for a way to put the euro on sounder footing.

Many say the financial policies were left far too much to short-term political expediency in the past and insist on rock-solid rules to keep spendthrift nations in control.

Lagarde fully backed for the EU to move to a more credible financial and budgetary policy, but, she added “from there to go to a fully automatic system, a power fully in the hands of experts? No.”

Rehn said the proposals he will officially table on Wednesday should be in force by next summer. He called for speedy approval of the member states and the EU legislature.

“The sanctions will need to be semiautomatic and rules-based and they will need to be triggered early enough in the process so that they are essentially preventive,” he said. He said they would not need any treaty changes which would draw out the process needlessly.

German Finance Minister Wolfgang Schaeuble wrote to his counterparts that Germany supports Rehn’s proposals to penalize noncompliant members that endanger the wider bloc with spendthrift policies.

“We are of one opinion,” said Schaeuble of Rehn’s plans.

He wrote that “stronger incentives” to keep deficits and debt of member states in line stand “at the very core” of economic governance.

In his letter, Schaeuble wrote that the economic governance system “should be given more bite by speeding up the process and by enabling application of sanctions on a quasi-automatic basis.”

ECB President Jean-Claude Trichet echoed those same words when he addressed the European Parliament and said “a core, absolutely indispensable element of an effectively surveillance mechanism is a functioning mechanism of incentives and sanctions.”

Such measures though would affect the independence of individual nations to set economic and budget policy. But what one countries does could affect all the other euro users, said Trichet.

“Since the vulnerabilities of any one member can have direct effects on other members, this surveillance framework must be supported by a graduated system of incentives and sanctions,” Trichet told the Parliament.

Lagarde specifically had problems with the near-automatic imposition of sanctions, without the political sphere having its say.

“The political power, its assessment, must stay in play,” she said.

This spring, Greece threw the eurozone into turmoil when the extent of its excessive spending became clear and the government could only be saved from default by a massive intervention of other eurozone countries.

Finance ministers opened talks late Monday in a task force to set up new rules to prevent another crisis that should be adopted by a summit of government leaders in late October. The finance ministers will come back to the issue too, on Oct. 16.

Several member states have been forced into budget belt tightening to keep deficits from wrecking chaos, affecting wages of government workers and employment programs.

Coinciding with Wednesday’s Commission proposals, the European Trade Union Confederation hopes to draw 100,000 protesters to demonstrate against the austerity plans.

Austerity measures have already caused repeated demonstrations in Greece and protests also hit Romania on Monday.

In Greece, riot police used tear gas to disperse protesting truckers and prevent a highway blockade, as protests entered a third week. Athens was forced into drastic labor reforms as part of deal for crisis-hit Greece to receive euro110 billion in rescue loans over three years.

In Romania, the interior minister resigned, the opposition demanded the prime minister go as well and top police officials held emergency talks with the president as fallout increased from the sharp wage cuts, tax hikes and other austerity measures the government has taken to fight its budget deficit amid a deep recession.

President Traian Basescu’s government has been unable to pay wages and pensions without a euro20 billion ($26 billion) bailout loan from the International Monetary Fund and other lenders, and the IMF is demanding strong action to trim Romania’s debt.

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