EU Seeks More Control Over Euro-Zone Member Budgets
The European Commission will set out proposals on Wednesday to significantly tighten its control over the budget policies of euro-zone member states, according to draft documents.
Under the proposals, struggling governments would be subject to frequent reviews of their policies and accounts, and euro-zone governments could effectively be forced by a vote of their peers to seek financial assistance.
The proposals, designed to strengthen the way the euro zone is governed, go as far as the commission believes it can without changing the European Union treaty, according to people familiar with the proposals. The plans come alongside efforts to boost the common resources available to fight the crisis.
On Wednesday, the commission also will release a paper outlining options for pooling national governments’ fund raising through common euro-zone bond markets.
Germany has said it will consider more ambitious pooling of euro-zone resources only if strict rules are first created to prevent countries from running large deficits and prevent them from allowing their banking systems to become sources of regional instability.
The commission’s proposals allow for greater oversight of euro-zone countries running large deficits and allow nations seeking or in risk of needing assistance to re-establish “financial stability.” Under the plans, the commission could decide when to place a country under so-called enhanced surveillance.
A country in that program would have to agree to regular reviews of its economic, financial and fiscal policies, including carrying out bank stress tests under conditions set by the European Banking Authority.
If a government doesn’t comply with the commission’s demands, it could be locked out of EU budget funding, which can amount to billions of euros a year. Stepped-up oversight would continue until 75% of any financial aid from other governments is repaid.
Most controversially, a majority of euro-zone member states would be able to “recommend” that a country seeks financial assistance under the proposals. This would all but force the country’s hand, because the commission proposes that such a recommendation could then be made public.
Earlier this month, Italy’s then-Prime Minister Silvio Berlusconi declined assistance from the International Monetary Fund, an offer other European countries were reportedly urging on the country. In the future, the proposals could make it harder for a country to say no.