The European Central Bank is asking EU finance ministers to consider changing the Lisbon Treaty in order to strengthen the European Commission's hand in punishing countries for falling out of line with the bloc's debt targets.
At their 17 June summit, EU leaders agreed to greater surveillance and coordination of national budgets following the Greek sovereign debt crisis. However, a deal on sanctions for countries in a weak financial position will not be finalised until a high-level task force, led by European Council President Herman Van Rompuy, reports in October (EurActiv 18/06/10).
The Van Rompuy task force will look at whether withholding EU funds might be an option for punishing errant governments, while an earlier Franco-German proposal to suspend countries' voting rights met with a cold response from other member states.
There have been ongoing concerns among diplomats about the practicalities of imposing sanctions, with some fearing that financial penalties would exacerbate economic problems (EurActiv 17/06/10).
Under plans tabled by the European Commission, EU countries can review each others' draft annual budgets before they are adopted at national level, during a so-called 'European semester' (EurActiv 01/07/10).
A high-level task force of EU finance ministers chaired by European Council President Herman Van Rompuy has received a proposal from the European Central Bank. Under the plan, an EU country would have to prove to its neighbours that it does not deserve to be punished for exceeding the EU's debt targets.
In other words, punitive measures, like cutting off deviant countries' access to EU funding, would be thrown to the wind if a country were able to get a majority of member states to agree that the punishment is too harsh, EU sources said.
"If there is no Qualified Majority Vote (QMV) against it, then the proposal for sanctions would stand," the source explained.
If agreed, the measure would be a veritable power grab for the European Commission as the burden of proof would fall on the country in question.
The only catch with the proposal is that it would require a change to the EU's Lisbon Treaty.
"We welcome the proposal but we all know it would require treaty change, an issue member states will have to discuss among themselves," the EU source added.
There has been much talk of treaty change since the EU began work on rehashing economic policy co-ordination, but the idea has received little backing from member states that had a tough time getting the treaty through first time around, most notably in Ireland.
The source said the EU could avoid the political upheaval attached to treaty change if the EU were to tack on amendments vis-a-vis economic sanctions to Croatia's upcoming accession agreement.
The Van Rompuy task force is currently rewriting how the EU stops member states from exceeding the bloc's agreed debt targets, which are formalised under the so-called Stability and Growth Pact.
The pact limits public deficits to 3% of GDP and national debt to a maximum of 60% of GDP, boundaries which were summarily overlooked after the onset of the financial crisis.
Member states which overstep the 3% target should in theory lose some of their EU benefits, a procedure that is rarely enforced because it requires the approval of a majority of member states in order to go through.
The ECB's proposal seeks to reverse that procedure by putting the onus on the country in question to prove to a majority of member states that the punishment is too harsh.
Last week the European Commission presented its own plans on economic governance, which include a detailed system of sanctions for member states which do not respect budgetary discipline requirements set out in the Stability and Growth Pact.
In the new plan, sanctions would go beyond regional funding to funds targeted at agriculture and fisheries to ensure that countries like France, Spain, Germany and the UK, the greatest beneficiaries of these, are treated in the same way as Eastern and Central European countries, which have predominantly benefited from regional funding (EurActiv 01/07/10).