PREVIEW-EU to mull new sanctions for EU budget rule breakers

Trade the News

Sunday September 05, 2010 05:05:16 AM GMT

By Jan Strupczewski

BRUSSELS, Sept 3 (Reuters) - European Union finance ministers will discuss on Monday how to more effectively punish EU budget rule breakers and make governments pay attention to debt amid some frustration that progress was slow.

Reforms of the 27-nation's budget rules, the Stability and Growth Pact, are to prevent another sovereign debt crisis like the one triggered by Greece, after the existing rules proved insufficient to enforce with debt and deficit limits.

Ideas for reforms are debated in what the EU calls the Task Force, which is effectively made up of EU finance ministers who first convened on the reform in May.

"The ministers will discuss what kinds of sanctions should apply, should they be automatic, what the procedures should be, if they should kick in only in the corrective part of EU budget rules or also in the preventive part, what the triggers should be," a euro zone source with knowledge of the preparations said.

Euro zone sources said there was some frustration among EU countries with the pace of progress, especially that the deadline has been set for the end of October, when the reform is to be approved by a summit of EU leaders.

"We are running a little bit out of time," the first euro zone sources said. "It is going in the right direction, but the general feeling around the table is that we are lacking in detail and the devil is in the detail," the official said.

"The discussion in the Task Force has not progressed that much -- we are still at the level of principles," a second euro zone source involved in the preparations for the minsters' meeting said.

"Everyone agrees there should be more and stronger and more automatic sanctions, but I am a bit frustrated we never have a detailed discussion on anything," the second official said.

TOO SLOW, TOO VAGUE

Sources said that while there was broad agreement that governments should pay greater attention to debt levels there had been no talks on how to achieve, enforce and monitor that and how to sanction misbehaviour.

"The fact is that we are not making progress at the speed and of a quality that most think would be appropriate," the first euro zone official said.

"There is no disagreement but that is mainly related to the fact that we haven't gotten down to the level of detail yet where there could be disagreement," the official said.

The ministers will also discuss a request by nine EU countries that pension reform costs should be excluded from deficit and debt calculations so as not to penalise those who undertake reforms putting public finances on a sounder footing.

"The proposal has no support among some of the big countries because they don't have such pension systems," the second euro zone source said.

Asked what kind of compromise was likely, the source said:

"Pension reform costs are likely to be taken into account in an indirect way, the Commission will pay attention to them in assessing deficit and debt developments," the official said.

The official added that the outcome will to a large degree depend on the determination of Poland, one of the biggest countries of the nine, to get what it wants.

Euro zone source said that a discussion of a permanent mechanism for crisis management in the euro zone, initially envisaged for September, was now more a medium-term goal.

"The consensus is that we should have this discussion eventually, but now it is not a priority as we have a mechanism for the euro zone and for the EU 27," the first source said.

The officials said the issue was complicated, would take time to tackle and it would be good for the single currency area to get some distance to the recent crisis before discussing it.

"It is quasi-impossible to come up with a permanent crisis resolution mechanism by the end of October, it is a more medium-term objective," the source said.

(Reporting by Jan Strupczewski, editing by Ron Askew)

(c) Copyright Thomson Reuters 2010. Click For Restrictions. http://about.reuters.com/fulllegal.asp