EU adopts stiffer budget rules to avert crises

EU states that let their deficits spin out of control could face stiff fines after the European Parliament adopted on Wednesday tougher budget rules to shield the bloc from future crises. The changes were agreed after a year of hard bargaining between governments, the parliament and the European Commission, all hoping to learn the lessons from a debt crisis that led to bail outs of Greece, Ireland and Portugal. "We have developed a powerful and resistant armour against any future crises," said the parliament's president Jerzy Buzek. "We cannot turn the clock back, but the package will ensure that member states budgets will be credible," he said. EU economic affairs commissioner Olli Rehn said the vote marked a "milestone" that will "pave the way for creating a real economic union to complement the monetary union." The new rules are part of a wider efforts in Europe to contain a nearly two-year-old crisis that is now threatening to drag the whole planet into another global recession. After billions of euros were spent on rescuing Greece, Ireland and Portugal, Europeans are under pressure to deepen economic integration to rein in profligate governments. The reform will enable the European Commission to recommend fines against governments with runaway deficits and debts. The sanctions could only be blocked if a majority of states vote against them. Budget sinners would be required to deposit the equivalent of 0.2 percent of GPD into a locked account. The funds could then be used to levy fines if the government fails to clean up its act. Euro MPs had sought more automatic sanctions, but governments were opposed to losing control of the decision-making process. The reform, known as a "six-pack" of laws, was backed by the conservative and liberal groups of parliament. The Socialist and Green blocs partially approved it, complaining it was too focused on austerity rather than growth. The threat of sanctions existed before, under the European Union's Stability and Growth Pact, but fines were never imposed as the voting system to impose them made it virtually impossible to make the axe fall on wayward states. In the old system, a penalty would have been imposed only if a majority backed the sanction. Nearly all members of the 27-nation EU have ignored the pact's rules requiring deficits of no more than 3.0 percent of gross domestic product and debts of less than 60 percent of GDP. Under the new rules, the European Commission will be able to require governments to take corrective measures if necessary to reduce their deficits and debts. Rehn said EU finance ministers will give the final endorsement to the new rules on Tuesday. "We will now have in place the most substantial and important institutional reform ever in the field of economic policy-making at the EU-level," he said. "I am looking forward to using this new toolbox."