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Brussels Plans to Bring Euro Zone to Heel

Peter Spiegel, Financial Times
Wednesday, 23 Nov 2011 | 2:18 AM ET

Brussels will on Wednesday propose measures giving it more authority over the national budgets of euro zone states, including a requirement to submit tax and spending plans to European Union authorities before their national parliaments.

EU building flags brussels
EyesWideOpen | Getty Images
EU building flags brussels

The proposals, obtained by the Financial Times, would also allow the European Commission, the EU’s executive arm, to send fiscal inspectors to euro zone capitals if it decides a country is “experiencing severe difficulties” – even if that country’s government has not requested them.

The new regulations, to be unveiled alongside a report on creating commonly issued euro zone bonds, come at a time of mounting criticism that the EU is subverting national fiscal policymaking, including pushing for technocratic governments in Italy and Greece to implement economic reforms de-manded by Brussels.

Speaking on Tuesday alongside Mario Monti, the new Italian prime minister, José Manuel Barroso, Commission president, insisted all final budget decisions would be left to national parliaments. But he said the Commission had to act when euro zone governments failed to live up to their commitments.

“National parliaments should know that when they take a decision they are also responsible for the consequences of these decisions on others,” Mr Barroso said. “In a monetary union we need to acknowledge this level of interdependence.”

Mr Barroso’s plans would allow the Commission to “request a revised draft budgetary plan” if it decides a government has violated EU budget rules. Although such a request would not be binding, it would be made public, putting political pressure on the country to comply.

Despite criticism from some quarters, intrusive surveillance has been pushed by northern countries, particularly Germany and the Netherlands. The Dutch have advocated an “intervention ladder” of progressively more Brussels control over policymaking in wayward countries.

Making such controls binding is central to Germany’s push to reopen the EU’s treaties, an effort viewed with trepidation by Mr Barroso and Herman Van Rompuy, the European Council president, who has been given the task of recommending possible changes at a summit next month.

“We have to change the construction of the euro area,” Angela Merkel, the German chancellor, said on Tuesday. “Treaty changes are for me an immediate part of solving the crisis, the political response to a politically derived confidence crisis.”

Unlike Ms Merkel’s treaty changes, Mr Barroso’s plans could be adopted quickly through existing rules, though EU officials acknowledge that they stretch treaties to the limit.

Olli Rehn, the EU’s senior economic official who would be empowered to use the new powers, made clear that he intended to act vigorously. “Rest assured, I will make full use of all these new instruments from day one of their entry into force,” he said in a Berlin address on Tuesday.

The Commission’s ambitions are detailed in its “annual growth survey”, which will be issued on Wednesday. A draft obtained by the FT chastised EU countries failing to implement reforms and warned that unless decisive action were taken, markets would continue to be sceptical about whether “the euro is a stable and strong currency”.

The survey – and subsequent country-by-country recommendations based on it – can be used by the Commission to launch inquiries into national accounts that could eventually be used to levy fines on countries that do not abide by EU reform recommendations.

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