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France, Germany Seek Tougher Budget Sanctions

by Ulrika Lomas,, Brussels

25 October 2010

In a joint declaration, released recently by the German Finance Ministry, France and Germany announced their common agreement on faster, more stringent and more automatic sanctions for European Union (EU) member states that fail to implement, within six months, vital corrective measures designed to reduce excessive deficits, or that fail to embark on the right budgetary consolidation path. Their proposed tougher sanctions are designed to strengthen both the preventative and corrective arm of the Growth and Stability Pact.

Emphasizing the fact that Europe is in a state of flux, the ministry underlines the need for the European Stability Pact to be reformed, and for the coordination of economic policy within the EU to be strengthened. France and Germany, it notes, are determined, to work together to bring about these necessary reforms.

France and Germany called for tougher sanctions to be firmly anchored within the relevant European treaties. Consequently, under the proposals, any member states that seriously violate the basic principles of Economic and Monetary Union would be punished by a suspension of their voting rights.

Both countries confirmed that another common objective is to embed a “robust crisis resolution mechanism” in the treaties, the precise details of which are to be fleshed out by the President of the European Council in close collaboration with EU Council members by March 2011. The aim is to define clear rules for the orderly resolution of future crises, which ensure that:

  • There are arrangements in place to guarantee that private creditors – for example banks – contribute in an appropriate way to overcoming crises;
  • Member states are able to take coordinated measures to preserve the financial stability of the euro zone as a whole.

Determined to ensure that corresponding changes to relevant treaties are made by 2013, both countries emphasized the need, however, to adopt other measures that could be implemented more quickly. Such measures would not require amendments to European treaties. Here, France and Germany stated that effective budgetary supervision of member states plays a key role, and proposed that a wider range of sanctions be applied as quickly as possible.

  • Firstly, both countries considered that there must be the possibility to intervene in a preventative way if a member state is not deemed to be sufficiently consolidating its budget. In other words, if the member state’s consolidation path deviates “in a particularly significant way” from European requirements. In such cases, the Council should in future be able to impose progressive sanctions on errant member states in the form of interest-bearing deposits, provided that this sanction is adopted by the Council by a qualified majority;
  • Secondly, both countries stated that there should also be the possibility of intervening in an effective corrective manner. If a deficit procedure against a member state has been initiated, the Council should in future be able to trigger a series of automatic sanctions if the member state concerned fails to implement the necessary corrective measures within six months. Again, such action requires approval by a qualified majority.
TAGS: tax | economics | Ireland | interest | fiscal policy | budget | France | Germany | European Union (EU) | Europe

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