Germany backs EU efforts to punish member states with wasteful spending policies

By Raf Casert, AP
Monday, September 27, 2010

Germany backs sanctions for profligate EU nations

BRUSSELS — Germany and the European Central Bank backed proposals on Monday to punish European Union nations with near automatic sanctions if they fail to keep their debt and budget deficits within limits.

EU Monetary Affairs Commissioner Olli Rehn said his proposals will call for member states to be punished early for financial transgressions and insisted sanctions could only be undone by a large majority of member states.

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 semi-automatic 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 non-compliant 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.

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 taskforce to set up new rules to prevent another crisis that should be adopted by a summit of government leaders in late October.

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.

Associated Press Writer Alison Mutler contributed to this story from Bucharest

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