European Union finance ministers have agreed how to toughen the bloc's budget rules to prevent sovereign debt crises, and said rule breakers would face sanctions only six months after being warned.
The reform of the rules that underpin the euro was based on a deal reached by the French and German leaders, and is intended to stave off any repeat of the debt problems in Greece this year which threatened the future of the single currency.
‘Today, the European Union made a great step forward in ... economic governance,’ EU President Herman van Rompuy said after EU finance ministers met in Luxembourg.
‘The package agreed ... will be the biggest reform of the Economic and Monetary Union since the euro was created.’
He will present the deal for approval by the leaders of the 27-country bloc at an EU summit in Brussels next week.
The ministers agreed the EU executive, the European Commission, will monitor national economies to detect problems such as real estate bubbles, unsustainable balance of payments trends or strong divergences in competitiveness.
If an excessive imbalance develops and a eurozone country does not change the policies which led to it, it could ultimately face sanctions.
The ministers agreed to apply new sanctions - and to do so more quickly - on eurozone countries, which do not move towards a budget close to balance or in surplus, run budget deficits above 3% of GDP or debt higher than 60% of GDP.
Sanctions, which would begin with an interest-bearing deposit, changing into a non-interest bearing deposit and ultimately into a fine, would kick in six months after a country was warned by the European Commission.
Under the current rules, financial sanctions await a eurozone country only at the end of a long disciplinary process, which could take years.
To reduce ministerial discretion in deciding sanctions - an issue which triggered a revision of the EU budget rules in 2005 - the penalties could be stopped only by a qualified majority of EU ministers, the ministers agreed.
The agreement was based on a deal struck by the eurozone's two biggest economies - Germany and France - whose leaders Angela Merkel and Nicolas Sarkozy announced its main elements after a meeting in the French city of Deauville.
‘The agreement between Germany and France was the basis for tonight's (finance ministers') agreement,’ German Deputy Finance Minister Joerg Asmussen told a news briefing in Luxembourg.
He said the agreement was approved without dissenting votes.
