Taskforce to discuss government debt
Finance ministers will tackle the controversial issues of government debt levels and sanctions when a special taskforce on economic governance meets in Luxembourg on Monday (18 October).
The taskforce, chaired by Herman Van Rompuy, the president of the European Council, is developing measures to improve economic discipline to prevent a repeat of the eurozone sovereign debt crisis earlier this year.
Van Rompuy will present a report on the state of discussion to a summit of EU leaders in Brussels on 28-29 October, setting out the areas of agreement.
Next week’s meeting will try to resolve outstanding differences about reducing debt levels and sanctions for member states that fail to respect the rules of the stability and growth pact.
Italy and Greece have debt levels of more than 115% of their gross domestic product (GDP) while ten other countries have debt levels of more than 60%, even though treaty rules stipulate that debt levels should not exceed 60%.
But there has always been more flexibility shown towards member states with high debt levels than to those with high budget deficits. Italy and Belgium were allowed to join the euro in 1999 despite debt levels far above 60% of GDP.
The European Commission is keen for the debt level to be policed as strongly as deficits have been. It has proposed that a member state should be required to reduce its debt levels by a certain proportion every year for three years. Otherwise it would face sanctions under the excessive-deficit procedure.
Italy wants the definition of debt reduction to take into account the structure of debt and the level of private- sector debt. It argues that its debt level is manageable because of the high level of debt held by Italian banks and households.
The Commission has proposed imposing financial sanctions on countries that fail to take action to reduce their deficits or debts. They could lose part of their share of EU funding. But this move is opposed by several member states that receive large amounts from the EU’s funds for regional development and farm and fisheries support.