EU finance ministers are set to support a German proposal for tougher sanctions against EU budget rule breakers, a move to shore up the euro and guard against a debt meltdown.
The ministers are meeting for the first time to discuss changes to the way the 27-nation bloc manages public finances and its coordination of economic policy as investors flee the euro, pushing the common currency down 6 percent this month.
“The question of sanctions must take priority. We must do everything we can so that countries that are lax with their budgets can be rapped on the knuckles,” Austrian Finance Minister Joseph Proell told reporters on entering the meeting.
French Economy Minister Christine Lagarde also said the German proposals were going in the right direction.
Germany, whose leader Angela Merkel has led the calls for tougher fiscal action, agreed to work together with France to solve Europe’s debt crisis, patching up a public rift between the eurozone’s top two economies that had rattled markets around the world.
A paper showed Germany wanted tight national compliance with budget rules, as it tries to rally the rest of the eurozone and EU behind its vision and stop differences undermining the bloc’s unity.
“We need to have stronger sanctions and better national frameworks; the culture of stability needs to be reinforced. I see strong points in the German proposal,” Swedish Finance Minister Anders Borg told reporters.
EU governments are trying to regain investors’ confidence after months of turmoil that have pushed many eurozone member states’ borrowing costs sky high, led to a 110 billion euro bailout of Greece and the setting up a $1trn safety net to try to prevent the contagion spreading.
The debt crisis has provoked huge instability in the 11-year-old euro currency, shared by 16 countries, and led to demands for EU states to work much harder on coordinating their economic policies and bring their finances into check.
EU finance ministers, chaired by EU President Herman an Rompuy will meet regularly over the next six months.
Their job is to look at how to give much more teeth to the EU’s budget rules, known as the stability and growth pact, to ensure that future crises can be prevented.
“Urgent action is needed to correct weaknesses in procedures and institutions, to reform the stability and growth pact and to develop new policy tools,” Germany said in a paper prepared for the meeting of EU finance ministers.