Europe's new fiscal rules weak: Trichet

European Union finance ministers agreed on Tuesday to toughen the fiscal rules for euro zone governments, only to have the proposals dismissed as “insufficient” by the president of the European Central Bank, Jean-Claude Trichet.

The agreement was the culmination of months of debate on how to strengthen the Stability and Growth Pact, which sets out fiscal guidelines for the 17 countries that use the euro currency, but which has been ignored by several countries and did not prevent the sovereign debt crisis.

The accord on six legislative proposals was the latest effort to restore confidence in the euro by extending economic and fiscal policy coordination and imposing sanctions on governments that fail to rein in excessive budget deficits and debt. The initiatives include an annual process under which budgetary policies of the countries involved will be reviewed to detect emerging imbalances.

The proposals now go to the European Parliament, which is expected to reach agreement by June. Olli Rehn, the European commissioner for economic and monetary affairs, said the agreement — together with a separate pact on broader economic policy coordination among euro zone countries — “will lead to a quantum leap in economic surveillance for Europe.”

But that claim was immediately questioned by Trichet during a part of the finance ministers’ meeting open to the public.

Speaking for the central bank, Trichet told the finance ministers, “We continue to think that the improvement in governance that is presently envisaged is in our opinion insufficient to draw the lessons from the crisis.”

He added that the debt crisis had revealed weaknesses that would not be “fully corrected, in our opinion, by what is presently envisaged.”

Other officials later played down his comments, pointing out that the central bank had, through many months of discussions, sought to toughen proposals to bring more rigor to euro zone finances.

“We know the position of the ECB,” said Amadeu Altafaj-Tardio, a spokesman for Rehn. “The ECB considers the legislative package was the minimum level of commitment.”

Officials hope the legislation will be agreed on by June with the European Parliament, where numerous amendments have been proposed, so Trichet’s comments may have been intended to influence the debate.

The latest issue is the extent to which countries will, if they have enough allies, be able to avoid sanctions if they breach fiscal rules. Under the plan, countries would be forced to make deposits that would be converted to fines in the event of repeated noncompliance.

The issue is a delicate one because France and Germany, the euro zone’s largest economies, flouted the Stability and Growth Pact in 2003 but did not face any consequences, undermining the authority of the agreement.

Last year, as the proposals for tightening the euro zone’s rules evolved, France managed to qualify a provision that sanctions on offending countries be applied semiautomatically.

©2011 The New York
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