EU austerity

The European Commission is searching for ways to hold its members to their promises related to budgetary spending and national debt.

The EU's commissioner for economic and monetary affairs, Olli Rehn, said in Brussels on Wednesday that while the bloc has imposed a solid set of rules - the Stability Pact and Growth Pact - most were simply ignoring them.

"We need to sharpen our teeth," Rehn said after a debate with colleagues on how to strengthen the euro.

Theoretically, all countries using the European single currency should not exceed a budget deficit of three percent of gross domestic product (GDP), and gross government debt of 60 percent of GDP.

However, countries like Germany, France, Portugal, Greece, Italy and Spain have regularly flaunted one or both of these rules since the euro was introduced. In 2007, for instance, every second eurozone member state had a national debt exceeding Brussels' official limit.

Among other possible ways to get tough on countries spending beyond their means, Rehn said one example would be "to suspend the cohesion funding (EU financial aid) for a country which is repeatedly breaking the rules over the Stability Pact."

To better monitor the situation, Rehn also advocated closer surveillance of individual national budgets by Brussels.

Greece sounds alarm

Greece has been the most consistent economic offender within the eurozone, only hitting either the budget deficit or the national debt targets once in the past decade. Its current budget deficit is at least four times higher than the EU limit.

The various rules in the eurozone's Stability Pact were designed to ensure that no country would ever need financial assistance from its fellow members, and so bailouts within the bloc were forbidden.

This was why the Greek rescue package - agreed upon by European financial ministers in a conference call last weekend - was so difficult to arrange; a simple handout was not permitted, EU ministers could only offer Greece low-interest loans of 30 billion euros ($40 billion), should Athens require them.

Germany has suggested new measures to give the EU more freedom to help countries that are struggling, with a European version of the International Monetary Fund. However, Olli Rehn was hesitant in Brussels on Wednesday, saying such an organization would require changes to the Lisbon Treaty.

"Today we don't need to reform the pact, it would be a good start just to apply it. But maybe we need new rules to build confidence again," he said.

Portugal also on EU radar

Rehn also singled out struggling Portugal on Wednesday, saying the country's proposed austerity measures might not be enough to stop the country following a similar path to Greece.

"The Portuguese stability program is ambitious and quite complete for the years 2011 to 2013, but additional measures were discussed and may be needed, especially this year, if risks to the macroeconomic and fiscal developments materialize," he said.

A report published by Rehn's office on Wednesday said Portugal's target of reducing its deficit to 8.3 percent of gross domestic product, or GDP, could run into trouble if Lisbon cannot raise the money it expects from non-tax revenue and spending cutbacks.

Portugal's deficit widened sharply - from 2.8 percent in 2008 to 9.3 percent in 2009 - after the government spent heavily to stimulate the economy and foot an increased unemployment and welfare benefits bill during the recent recession.

msh/gb/dpa/AP/AFP/Reuters
Editor: Chuck Penfold