EU agrees new rules to rein in budget sinners

BRUSSELS, Mar 15 (AFP): European Union (EU) finance ministers Tuesday proposed six new laws aimed at tightening budget discipline and punishing governments that overspend to prevent a new debt crisis. The EU said ministers ended months of sluggish negotiations on new rules covering national budget management, agreeing on the need to introduce financial penalties for states that repeatedly break a beefed-up Stability and Growth Pact -- best-practice targets originally drawn up to ensure currency partners would not have to rescue wayward members of the eurozone. The new rules, which the European Parliament may seek to toughen further in negotiations on legislative drafts between now and June, represent "a key contribution for the discussions of heads of state or government on Europe's comprehensive response to the economic crisis," said Hungarian economy minister Gyorgy Matolcsy, who chaired the talks. Ministers recognised "existing EU instruments did not generate a satisfactory decline of public debt and catered insufficiently for macroeconomic imbalances," a statement said, after huge international bailouts for Greece and Ireland last year. New financial sanctions would be introduced for the 17 eurozone states and "these would apply earlier on in the excessive deficit procedure," an existing name-and-shame regime, the statement added. Fines, which would initially take the form of returnable deposits where corrective action is taken as ordered by Brussels, would ultimately be transferred into the EU's financial rescue funds. While ministers were happy with their work, European Central Bank chief Jean-Claude Trichet said "we continue to think that the improvement in governance that is presently envisaged is in our opinion insufficient to draw the lessons of the crisis that we had to cope with. "We need improvements in a number of domains," he added. Swedish finance minister Anders Borg added that the success of the economic governance package "is all about implementation in the future." The proposed laws are part of vast efforts to prevent a repeat of the debt crisis that has rocked the eurozone over the past year. Germany, the biggest contributor to the Greek and Irish bailouts, warned of dangers if governments did not respect voluntary rules set up at the time it abandoned the deutsche-mark in 1999. Poland's Jan Rostowski nevertheless lamented that the banking sector, the source of property bubbles that lay behind some of the worst of the debts in Ireland or Spain, was not covered. "We haven't really set up a framework for the contingent risk coming from the banking sector," he said. "We haven't gone that extra-step... I think in three-to-five years' time, we need to come back to this." In one of the most contentious areas during already tough negotiations between states that jealously guard their fiscal independence, ministers agreed on rules governing the reduction of public deficits. While stiffer punishment kicks in for annual deficits that fail to remain within a three-per cent-of-GDP threshold, cumulative national debt would for the first time also be the object of punishment if it does not move sufficiently fast towards a widely-ignored 60-per cent-of-GDP limit. However, states will have three years in which to reduce the gap above the threshold by an average of one-20th per year and may also escape punishment when taking into account "other relevant factors, such as implicit liabilities related to private-sector debt and ageing cost." Critics have said such rejoinders amount to a heavy watering down of initially ambitious aims. Poland lobbied intensively so that "the net cost of implementation of a pension reform would also be considered."