Stringent EU budget rules come into force

STRINGENT and comprehensive new budget rules for EU governments backed up with tough penalties come into force today and are similar to what the new inter-governmental fiscal compact aims to reinforce.

Euro Commissioner Olli Rehn, commenting on last week’s summit, said he regretted that EU leaders had to resort to an inter-governmental agreement because the British vetoed putting the measures into the EU Treaty. However, he reminded Britain their institutions would be subject to the same financial sector regulations as in the rest of the EU.

“If this action was intended to prevent the City being regulated, this is not going to happen. We must all draw lessons from the ongoing crisis, and this goes for the financial sector as well . . . Britain will be subject to the same surveillance as other countries even if the enforcement applies mainly to the euro states,” he said.

He also denied speculation that the inter-governmental fiscal compact could not be enforced or implemented by the Commission. “Contrary to some media reports the result of this summit is better than first meets the eye — bold, effective and legally viable,” he said, adding it builds on the foundation of the six-pack.

The Commissioner acknowledged that much of what is known as the ‘six-pack’ of new rules are the same measures the summit agreed should be part of a new treaty.

EU sources acknowledged that, in fact, all the elements of the new fiscal compact that has split the EU can be introduced through legislation and do not need treaty change. The one exception is making the Commission’s recommendations to move against erring countries automatic, unless overturned by a qualified or super-majority of member states.

The six-pack was approved by all member states and the European Parliament last October and represents the most comprehensive reinforcement of economic governance in the EU and the euro area since the launch of economic monetary union almost 20 years ago, the Commission said.

Mr Rehn said he was ready to use the full set of tools from day one — today. However this will not apply to countries that are already in an excessive deficit procedure having breached the 3% of GDP government budget deficit and whose debt exceeds the 60% of GDP rule. Currently this covers 23 of the 27 member states and once they get their figures back in line they will have a three-year transition period before new rules apply.

A new early-warning procedure has been set up to identify gaps in competitiveness and major macro-economic imbalances in each member state.

The Commission can undertake a detailed study if any of these indicators suggest a problem such as a lack of competitiveness, an unsustainable rise in private debt and housing bubbles, and make recommendations on correcting this enforceable by sanctions.