National budgets to face scrutiny as finance ministers agree EU proposals

EUROZONE finance ministers have agreed to the EU tightening its grip on member states’ annual budgets, checking that the spending and deficit targets are in line with its rules.

To avoid housing and other bubbles such as the one that hit the Irish economy, they will also keep a close eye on not just public but private debt, watching for danger signs that economies are overheating.

The measures are part of a panoply of indicators that the European Commission and EU member states will monitor in an effort to prevent future economic crisis.

There was an outcry from many countries and from Fine Gael when the original proposal was made for the EU to vet the broad outlines of budgets before they were approved by national parliaments, but the only country opposing it now is Britain.

For Ireland, it will mean bringing forward the bottom lines of the following year’s budget, such as spending and revenue forecasts, from December to April, and presenting them to the Oireachtas at the same time as they are sent to Brussels.

The commission and member states will give their opinion and the details – such as tax increases or spending cuts – will then be drawn up and submitted to the Oireachtas for its approval.

Speaking at the end of a taskforce meeting that put together the new system of managing eurozone risk, EU president, Herman Von Rompuy, said the budgets would not be checked in detail. “That is the prerogative of the national parliaments,” he said.

However, the main assumptions underlying the budgetary plans, such as the levels of growth or inflation, would have to be submitted for examination each spring, as would assumptions on total revenues, spending and deficit targets.

National governments could find themselves pressurised into changing their budgets, as a finance minister presenting a plan with a high deficit will have to justify it or adjust it before the final budget is presented to the national parliament.

There will be a system of more sanctions earlier on in the process to replace what Mr Van Rompuy called the “nuclear button” in the current Growth and Stability Pact rule book. Instead, there will be a system of traffic light warnings imposed before countries reach the obligatory ceiling of 3% of GDP budget deficit.

The sanctions will likely include a withdrawal of EU finance, but the finance ministers ruled out other sanctions being pushed by Germany, such as losing voting rights, which would have meant a change in the EU treaties and a likely referendum in Ireland.

The taskforce also agreed there will be more emphasis on keeping national debt to the 60% of GDP limit in future. But private sector debt will also be taken into account as part of an evaluation of a country’s competitiveness.