Tags: EU | Europe | Financial | Crisis

EU President Demands Budget Overhaul to Avoid Another Crisis

Thursday, 17 June 2010 07:16 AM

The European Union's president called on the leaders of the bloc's 27 states to tackle long-term problems with their economies and overhaul budget rules to prevent the repeat of a damaging debt crisis.

Herman Van Rompuy was speaking at the start of leaders' talks, just a month after EU governments pledged some 750 billion euros ($1 trillion) to rescue any member country that can't make debt repayments.

Spain will tell other nations about its recent budget cuts as it faces market pressure to seek financial help. Leaders said there were no plans to discuss a possible bailout for the country, in the wake of a May rescue for Greece.

Van Rompuy said governments had to follow up their initial "shock and awe" rescue package and "tackle with the same determination the more structural problem for the long-term progress of our economy."

"That's why we will speak about the European strategy 2020, about banking regulation, about budget discipline, about competitiveness: all with one common objective — to make European economies ready for the future," he told the leaders.

Under pressure from markets and other EU nations, the Spanish government on Thursday agreed labor market reforms to encourage companies to hire — and make it easier to fire — workers in an effort to cut its jobless rate, the highest in the euro zone at around 20 percent.

The determination to make long-delayed structural reforms — usually one condition of International Monetary Fund loans — and a scheduled meeting between the Spanish prime minister and IMF head Dominique Strauss-Kahn have fueled rumors that the country could be seeking financial aid options.

Officials have consistently rejected reports that the country could soon seek financial help. The Spanish daily El Economista said Thursday that the IMF, the European Union and the U.S. Treasury are preparing a package for Spain that includes a 250 billion euro ($307 billion) credit line.

With a row of emergency summits behind them in recent months, European governments must now get down to harder work on longer-term fixes to their economic problems — including stricter oversight of national spending which aims to prevent any more of them requiring financial rescue.

Public debt is soaring across the region as governments take on the cost of saving banks over the past two years and pay out more to boost their economies or in social welfare to the rising number of jobless. At the same time, tax revenue is falling as economic growth stalls.

All EU nations have agreed to start next year on reducing their budget deficits — the difference between government income and spending — and their overall debt. They must also find ways to help their economies grow, despite tight finances that won't allow much stimulus spending.

EU governments are currently working with Van Rompuy on ways to toughen EU rules that limit deficits to 3 percent of gross domestic product and debt to 60 percent — rules that most of them are currently flouting.

Leaders won't take detailed decisions Thursday — leaving the final word until October talks — but will decide what they want to focus on.

Germany is calling for harsh sanctions, such as stripping countries of voting rights if they break the budget rules. France backs more early warnings for countries running up debt. And Britain is firmly opposed to discussing its budget plans with other nations or the European Commission before it draws up the final spending program.

Germany wants major changes to the EU treaty to introduce sanctions. But many other countries are against a lengthy legal process that will mean opening up a Pandora's box by putting the EU treaty to national or parliamentary votes. In Britain, for example, a vote would likely become a poll on the country's EU membership.

EU leaders also have to decide whether the 16 nations that use the euro need to bolster the budget rules to protect their shared currency — or whether any tougher framework should also apply to all 27 countries.

German Chancellor Angela Merkel is keen to keep all 27 on board, but French President Nicolas Sarkozy has consistently pushed for more euro zone meetings to discuss the economy. Other EU countries outside the euro, such as Poland, are also keen to beef up budget rules.

Luxembourg Prime Minister Jean-Claude Juncker, who heads euro zone economy talks, told reporters that economic oversight between the 16 euro countries "must be able to go further than the 27."

Wider talks will focus on ways to shake up the region's sluggish growth, setting 10-year targets for Europe to become more competitive by investing more in research, education and renewable energy.

Governments are also due to broadly back a levy on banks — but were unclear how much this should be and whether it should be paid into national coffers or a special bailout fund. They will call for a similar global levy at talks of the Group of 20 rich and emerging nations in Toronto next week.

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The European Union's president called on the leaders of the bloc's 27 states to tackle long-term problems with their economies and overhaul budget rules to prevent the repeat of a damaging debt crisis.Herman Van Rompuy was speaking at the start of leaders' talks, just a...
Thursday, 17 June 2010 07:16 AM
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