EU mulls fines on big deficits

 
City A.M. Reporter
THE EUROPEAN Commission proposed tougher sanctions on Eurozone countries that breach EU budget rules yesterday, as trade unions staged strikes and protests against austerity measures.

The EU executive outlined plans to prevent a repeat of Greece’s debt crisis by making chronic deficit offenders deposit 0.2 per cent of their gross domestic product with Brussels.

The interest-bearing deposit would be converted into a fine unless the country brought its budget gap below the EU limit of three per cent, while repeat offenders will incur annual fines of 0.1 per cent of GDP.

“[The] changes will give teeth to enforcement mechanism and limit discretion in the application of sanctions,” the Commission said.

The proposals require approval by EU heads of government and the European parliament.

Some economists argue that stiffer penalties for deficit sinners will not solve the EU’s problems since harsher austerity may choke economic growth in those countries.

“Unless there is a rethink, the Eurozone risks permanent crisis, with chronically weak economic growth across the region as a whole,” said Simon Tilford, chief economist of the Centre for European Reform.