EU seeks tougher budget rules to win market trust

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EU seeks tougher budget rules to win market trust

BRUSSELS — European Union finance ministers started laying out new, tougher rules for their public finances in the hopes of winning back market confidence and getting a handle on the debt crisis that is threatening the euro.

By (AP)

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Published: Fri 21 May 2010, 9:46 PM

Last updated: Mon 6 Apr 2015, 11:09 AM

Some nations are pushing for meaningful penalties — from stripping countries of voting powers to ejecting them from the eurozone — for repeated debt offenders. The current rules are backed up on paper by heavy fines, which have never been imposed.

The aim is to avoid an EU bailout like the one given Greece by tightening checks sooner — before a country is in financial trouble.

Europe’s stock markets, however, continued to slide Friday despite the approval by Germany’s lower house of parliament for a ¤750 billion ($937 billion) package of cash and state loan guarantees to protect eurozone countries with troubled finances from bankruptcy.

Germany’s share of the package won approval in the upper house, and Berlin’s promise to contribute up to ¤147.6 billion in loan guarantees will be finalized after President Horst Koehler signs the bill — expected to be a formality.

Chancellor Angela Merkel said the vote sent “a clear signal to Europe and for Europe — but linked with a clear signal for more of a culture of stability in the eurozone in future.”

German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin that the country had to make the rescue package a reality “because markets will only trust when it is actually in effect.”

France is due to vote on the eurozone bailout by May 31 but neither Spain or Italy have set a deadline to authorize it. Along with Germany, these nations will provide the bulk of the package.

The euro rose 0.8 percent on the day, to $1.2566, but stocks slid. The FTSE 100 index of leading British shares was down 2 percent while Germany’s DAX tumbled 2.3 percent and the CAC-40 in France dropped 2.5 percent.

The euro has shed some 18 percent of its value since December.

Friday’s meeting is just the start of EU reforms that will be decided in October. But economists say that convincing action to reduce debt is the next needed step after the bailout loan package, which can only add more debt.

Germany has pushed hard for aid to debt-laden European countries to be coupled with requirements to bring down deficits. That seeks to compensate for fears that the backstop effectively removes the pressure on indebted euro nations to cut debt fast.

German Finance Minister Wolfgang Schaeuble says he wants to make life far harder for eurozone governments that break widely ignored rules limiting debt and deficit. He suggests making a 3 percent deficit limit legally binding and adding sanctions such as losing voting rights at the EU, losing EU funds or ultimately being ejected from the euro.

France says it supports the German proposal. French Finance Minister Christine Lagarde said the German program was “very interesting and really going in the right direction.”

Spain and Portugal have been pressed into making more spending cuts and EU officials have warned that other eurozone countries with large deficits — such as Ireland — may have to do the same.

Britain, which is outside the euro, has already signaled discontent with some proposals for all 27 EU nations to coordinate budgets before governments send detailed spending plans to national parliaments.

British treasury chief George Osborne said he had “many allies” among EU countries who agreed that parliaments “have to be the first people told about the important tax and spending decisions that countries like Britain have to take.”

He said he will set out new budget cuts on Monday, saying he was “very conscious” of Britain’s large deficit.

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