The European Commission proposed Wednesday that countries in the European Union not reining in their budgets be hit with penalties in an effort to prevent another Greek-style meltdown that could threaten the euro’s existence.
According to one proposal, as reported by The Associated Press, countries would be compelled to set aside 0.2% of their GDP into a non-interest-bearing account as a safeguard against incurring too much debt. If debt exceeds the 60% official limit of GDP, or if the annual budget deficit exceeds 3%, and the country does not follow EU recommendations to reduce it, those funds set aside would be converted into a fine. Depending on the country’s size, it could be obligated for billions.
Greece’s annual borrowing was four times the limit in 2009 and its total debt was double what was allowed by the rules. Under the old system, countries were not fined for exceeding limits, and the IMF had to pitch in $140 billion to keep Greece from defaulting. The new rules propose that the Commission will decide whether a country is punished, and other countries will have to vote to forestall any action.
While Germany supports the new measure, France and a number of other nations are determined that elected officials will determine budgets; they regard the arrangement as punitive.
Jose Manuel Barroso, the president of the European Commission, called the proposals a “sea-change” in the management of financial issues within the European Union.