MNI INTERVIEW: Eurozone Deficit Fines Should Be Scrapped

By Silvia Marchetti

     ROME(MNI) - Barring countries that fall short of fiscal requirements from

accessing common European funds could be more effective than resorting to a

system of sanctions which has lost credibility, Massimo Bordignon, a member of

the European Fiscal Board which is advising the European Commission on potential

changes to the EU's Stability and Growth Pact, told MNI.

     "It has become ever more difficult to impose sanctions on member states

that do not respect the EU's budgetary rules, and in fact they've almost never

been imposed for political reasons, Bordignon said in an interview.

     The power to apply sanctions such as fines, via mechanisms including the

excessive debt procedure, grants an excessively political role to the European

Commission, said Bordignon.

     Since a 2013 rule change, the European Council, which groups heads of

states, has only been able to block proposed fiscal sanctions with the vote of

70% of countries. Previously, the Council had to approve sanctions by qualified

majority.

     "If on the one hand the European Commission tends to avoid proposing

sanctions due to its overly political role and the fact that sanctions are

politically unpopular, on the other hand, if it did do so, the current voting

scheme would bar the Council, which should be the real political body, from any

power of decision," said Bordignon.

     The effectiveness of the Stability and Growth Pact's rules was called into

question as early as 2003, when France and Germany escaped sanction for fiscal

blowouts. Fines for Portugal and Spain were also waived in 2016.

     --INEFFICIENT

     Sanctions are inefficient in pushing governments to pursue fiscal

adjustment and would also be counterproductive if imposed during hard economic

times, he said.

     "Not only is imposing sanctions very hard today but it is also

counter-cyclical. Another more sensible alternative to raise pressure on

countries that fall short of EU fiscal criteria would be to bar their access to

common EU tools of support, for instance access to the European Stability

Mechanism," and to EU structural funds, said Bordignon.

     "As opposed to sanctions, this path has incentives and would be much more

effective. Countries would be more willing to stick to the rules for fear of

being denied access to common safety nets, they'd have a clear picture of what

they'd be denied."

     Currently, fines, which can in theory be as much as 0.2% of a country's

GDP, are kept frozen in an interest-free account, but are eventually returned to

the offender.

     Agreement on abandoning the system of sanctions might be made easier by

ongoing moves to reform eurozone fiscal rules, Bordignon said.

     The European Commission is due to publish its recommendations on reforming

the Stability and Growth Pact, which sets out the region's fiscal rules, early

in 2020 following delays over the nomination of the new Commission.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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