As member states continue spending beyond their means, the EU has agreed to set up a watchdog to monitor national budgets. The plan is to keep control of borrowing levels and prevent future debt crises.
The goal is to keep the euro's value out of the sewers
Starting next year, the 27 European Union members will have to submit their proposed budgets to the EU in advance, so that Brussels can srutinize their plans before they take effect.
European finance ministers agreed on Tuesday to this new method, designed to prevent individual countries racking up excessive levels of debt, at a special meeting in Brussels.
"The initiative will allow the economic and budgetary policies of the member states to be monitored in parallel during a six-month period every year, starting in 2011, so as to detect any inconsistencies and emerging imbalances," an official joint statement said.
The plan is to create what amounts to a new budget watchdog or financial peer review, which the EU has dubbed a "European semester."
The most famous European example of irresponsible fiscal policy is Greece, a country which for years submitted false financial data to Brussels while its public debt careered out of control.
Greece's debt crisis and rescue package highlights a broader European problem
These problems, coupled with the realization that the situation in a host of European countries was little better, led to a stark devaluation of the European single currency, the euro, and the hasty formation of emergency funds designed to protect the eurozone from a debt-triggered currency collapse.
Some EU members, most notably Britain, had been reticent to agree to a deal that might be considered an encroachment on national sovereignty. The British government signed on once the deadlines were revised to ensure that interim budgets could first be presented to national parliament before being sent to Brussels.
Under the new system, EU members would agree on the main economic challenges facing the bloc in March and recommend some generalized policy ideas. In April, each state would then revise its existing budget strategies to reconcile them with these guidelines.
Then, in a final step taking place through June and July, the European Commission and the council of member states would "provide policy advice before the member states finalize their budgets for the following year," according to the statement.
Officials in Brussels, however, stressed that the monitoring procedure would not allow the EU to overrule the decisions of national parliaments, meaning that the final decision would still remain with national governments.
The assembled finance ministers also agreed on a plan to implement pan-European watchdogs as of 2011 to oversee banks, insurers and the financial sector, designed to work alongside existing national regulators. In the event of disagreement, these new European financial sheriffs would outrank their national counterparts.
The EU is seeking to shore up the bloc's economy against future recessions or financial crises, and to keep member states' levels of borrowing under control.
Most EU members currently have annual budget deficits which exceed the prescribed limit of three percent of Gross Domestic Product (GDP), and overall national debts higher than the supposed maximum of 60 percent of GDP.
Author: Mark Hallam (AP/dpa/Reuters)
Editor: Nancy Isenson