Euro ministers discussing new ways to crack down on spendthrift governments

Euro ministers discussing new debt rules

BRUSSELS — The finance ministers of the 16 countries that use the euro gathered Thursday to debate new rules that would crack down on overspending governments — but disagreements over key elements meant quick consensus seemed unlikely.

On Wednesday, the European Commission published a set of proposals it hopes will prevent another government debt crisis like the one that that nearly bankrupted Greece earlier this year and raised questions about the very future of the euro currency itself.

One of the key proposals would force countries to set aside 0.2 percent of their gross domestic product if they run up too much debt. The amount does not sound like much but could run into billions, depending on the size of the country.

The penalties are aimed at keeping government deficits at or below 3 percent of GDP.

The Commission wants a more “rules-based” approach to stop politicians all round Europe balking about reprimanding their partners. Under the previous set of rules, EU countries never gathered the will to fine each other when they ran budget deficits that broke the limits.

This inability to rein in government spending came into sharp relief when it took a last-minute euro110 billion ($140 billion) bailout in May from the International Monetary Fund and eurozone nations to keep Greece from defaulting on its government debt.

While most governments agree that the old way failed and needs to be strengthened, there’s disagreement on who should have the power to impose the sanctions and whether fines should take effect almost automatically unless governments specifically vote against them.

France is among those opposed to handing over more power to unelected bureaucrats in Brussels.

Though French Finance Minister Christine Lagarde agreed Thursday that it was a “good idea to reinforce the pact,” she has not commented about the Commission’s proposals — perceived as a sign that she is wary of automatic fines — and has voiced her unease about politicians losing their input.

Luxembourg’s prime minister Jean-Claude Juncker also raised questions as he headed to the meeting of eurozone finance ministers, along with Lagarde.

Juncker, who is also head of the eurogroup of finance ministers said the proposals were going in “the right direction” but noted that there were details that still need to be discussed.

“Those have been mentioned by Lagarde,” said Juncker. “These are real problems.”

There are a number of other issues on the table as finance ministers meet over the coming two days — later Thursday, the eurogroup will be joined by their counterparts from the rest of the EU.

Top of the agenda is likely to be the Irish government’s decision to take majority control of Allied Irish Banks and pump billions more into two smaller banks as it seeks to stabilize the country’s financial system.