Brussels backs off 'stringent' EU budget rules

The European Commission is rethinking how to enforce European public spending rules designed to give stability to the euro.

Europe’s Stability and Growth Pact sets out national budget rules engineered to underpin the single currency used in 12 economies.

The rules have taken a battering with key European governments – led by Germany and France – serial offenders against a public debt ceiling fixed at three per cent of GDP.

And Brussels budget enforcers seeking to uphold the guidelines were last November overridden by the Ecofin council of Europe’s finance ministers triggering a pending EU courts battle.

Making something of a climb-down, EU economic and monetary affairs chief Joaquin Almunia has indicated that the commission’s application of rules may have been too harsh.

“The experience of the last five years has shown that in certain cases at least the rules have perhaps been too stringent and have reduced our room for manoeuvre,” he said on Thursday.

The commission is proposing an overhaul of how budget deficit rules are applied in a bid to stop national governments, sidelining Brussels, watering down or tearing up the EU pact.

“It is probably necessary to clarify certain definitions of the rules on the excessive deficit procedure.”

“We have to introduce some flexibility into some of the rules of the pact.”

A document aimed at damage limitation to preserve a commission role in the stability pact notes “unwelcome tensions in the application of the EU framework for budgetary surveillance”.

“While there is a need to reassess the functioning of the framework, the conduct of fiscal policies in Europe should benefit from past experience,” said an official statement.

“Budgetary consolidations and re-orientation towards non-distorting, growth enhancing revenue and expenditure policies should be continued as economic conditions improve.”

Almunia is seeking to move enforcement away from threats of fines or sanctions to peer pressure on commission recommendations from other national governments.

The latest move may appease capitals such as Paris – France is heading for a breach of the three per cent of GDP debt rule for the third year running.

French finance minister Nicolas Sarkozy on Thursday called for rules that “better reflect the individual debt and economic growth situation in each country”.

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