June 13 The European Union is debating a series
of reforms to try to prevent any future euro zone debt crisis.
Reforms designed to prevent debt building up, increase
macroeconomic cooperation and set up a permanent aid mechanism
for countries in fiscal trouble are being worked out by a task
force led by EU President Herman Van Rompuy.
The task force, which includes the bloc's finance ministers,
the European Central Bank and the European Commission, is to
propose changes before an EU summit in October.
The 27-country EU has also pledged to pioneer reform of the
financial sector following the global economic crisis, but large
EU member states disagree on how exactly this should be done and
discord has slowed down progress.
Following are the main reforms and some sticking points:
STRONGER BUDGET DISCIPLINE RULES
* All EU countries should strive to achieve a budget close
to balance by cutting their deficits by 0.5 percent of GDP
annually. Penalties for exceeding the deficit ceiling of 3
percent of GDP should be automatic or semi-automatic.
Countries failing to move towards the balanced budget could
be forced to make financial deposits with the EU executive, the
European Commission. Rule breakers could also be stripped of EU
aid funds. Germany wants all countries to incorporate tough
budget laws into their national legislation.
* There should be more focus on debt. Since the current rule
that countries should have a debt-to-GDP ratio below 60 percent
is not respected, disciplinary steps should be taken against
governments that do not cut their debt levels fast enough.
* Governments should cooperate more closely on synchronising
their budget policies, reducing differences in competitiveness
of their economies and aiding countries in trouble.
* EU countries would in the first six months of each year
send Brussels their rough budget plans for the following year so
that the Commission and all finance ministers can review them.
* Surveillance of the macroeconomic imbalances should be
beefed up. The Commission would assess the risk of all possible
forms of macroeconomic imbalances that jeopardise the proper
functioning of the euro area, and suggest what needs to be done.
Finance ministers would then ask the country to take the
necessary action to remedy it. The Commission could also issue
warnings to that country.
* A recently approved aid mechanism for Greece worth 110
billion euros ($132.4 billion) and a safety net for other euro
zone countries worth 500 billion euros are temporary measures
and will expire after three years.
* Proposals being floated include a common bond issued by
euro zone countries, possibly overseen by a European Debt Agency
or a European Monetary Fund similar to the International
Monetary Fund. Germany opposes a common euro zone bond and backs
the European Monetary Fund idea.
* France wants regular meetings of euro zone leaders that
would function as an economic government for the currency area
and be a political counterweight to the European Central Bank.
* Germany shuns the idea of a euro zone government able to
make voluntary decisions and wants tough budget discipline rules
inscribed into national laws or an amended EU treaty.
* Britain opposes any reforms that would cede more powers to
EU institutions. It has ruled out sending its budget plans to
Brussels before its national parliament is informed about them.
* Most European leaders would like to collect more money
from banks but they disagree over whether this should end up in
the public purse or in a special fund for future crises.
* The debate has been complicated by proposals from Germany
to introduce a tax on financial transactions, which London
* With a global deal ditched before a meeting of G20
countries this month, Europe is struggling to find a formula
that could work across the whole bloc.
* EU politicians have long blamed "speculators" for making
the euro zone debt crisis worse. They believe investors who bet
on Greece defaulting on its debt caused panic on markets and
forced euro zone countries to build a $1 trillion safety net.
* But tackling the market bettors has been messy, with
Germany imposing a unilateral ban on some trading, a move that
caused more chaos on markets.
* The European Commission is set to unveil a draft set of
rules to control the $600-trillion market in derivatives, which
give investors the option to buy anything from currency to gas
at a fixed price in the future.
* A row is brewing between Germany and France, who want some
trading to be banned, and Britain, which wants looser controls.
EU REGULATORY SUCCESSES
* Hedge funds and private equity are the first parts of
financial services to be covered by new post-crisis EU rules
that will place them under the watch of a new pan-European super
* Ratings agencies will also be subject to new controls
this year that require them to outline how they take ratings
decisions for countries such as Greece.
* Michel Barnier, the EU commissioner in charge of an
overhaul of financial services, has said he will do more to
break the power of the big three agencies that dominate this
market. One of his ideas is to set up a European ratings agency.