EU unveils new budget discipline rules

European Commission President José Manuel Barroso said the new system was "the biggest step forward on economic governance since the Stability and Growth Pact was introduced".

"These measures put excessive deficit and debt on an equal footing. Debt can be as damaging as deficits. Money used to repay debt is money that cannot be used for health, education and pensions. Debt and deficits are anti-social," said Barroso.

He said sanctions would apply much earlier than in the past, helping prevent the kinds of sovereign debt crises that have gripped Europe this year. "We will pull the handbrake before the car rolls down the hill," Barroso said.

He dismissed criticism from John Monks, leader of the European Trade Union Confederation (ETUC), who said the new rules would apply to all member states, except for Sweden and Estonia, because public finances are in disarray across Europe. Barroso said critics of the plan have not read it in full.

Belgian MEP Guy Verhofstadt, leader of the liberal ALDE group, said the new measures will steer economies back onto a path of stability and called on finance ministers to endorse the proposals without delay.

"In this period of crisis, with most EU member states' budget deficits exceeding the 3% limit and their debts continuing to rise, time is of the essence if we are to avoid aggravating economic and social pressures further. We are facing a ticking time bomb on an even greater scale than witnessed so far. That's why member states should refrain from watering down this Commission proposal, like they did on financial supervision, forcing negotiations to be dragged out over nine months before returning to the logic of the original proposal," Verhofstadt said.

German MEP Martin Schulz, leader of the Socialist & Democrats group in the Parliament, said the new proposals would be too restrictive for national economies.

"If these measures are adopted, our economies will be locked into a straitjacket. We do not oppose greater budget discipline. Indeed, we believe it is necessary to ensure the stability of the euro zone and the viability of our economies. But discipline is not enough to stimulate growth and job creation. For millions of people who have lost their jobs because of the financial crisis, this further turn of the screw will be really bad news. We insist on a more flexible approach. Our member states must be allowed to restore their public finances and cut their debts at a pace that takes account of the economic and social challenges they face," he said.

Dutch MEP Corien Wortmann-Kool, vice-chairwoman of the European People's Party group in the Parliament, said that sustainable public finances were a precondition for improving the EU's competitiveness.

"The results of the Task Force set up by the European Council did not meet our expectations. But we are positive regarding the Commission's proposals. It is clear that we must be able to impose sanctions on member states [who breach the Stability and Growth Pact] [...] to prevent them from breaking the rules," she said. Portugese MEP Diogo Feio, EPP rapporteur on economic governance, also called for "a stronger surveillance framework of macro-economic and structural policies across the member states," in order to "prevent excessive debt and improve competitiveness and growth".

Sony Kapoor, a financial analyst and managing director of Re-Define - a think-tank – said the proposed measures would have helped prevent the economic meltdown visited upon Greece but would have done little to tackle the problems now facing Ireland and Spain.

"These were the only two countries that did not violate the SGP so merely reinforcing the penalties for violating the SGP misses the point. The EC's approach confuses symptoms and causes. The package seeks to control the fever of fiscal fragility whilst completely ignoring most of the underlying economic drivers that can cause it. The patient will eventually collapse," he said.

Kapoor warned that the Commission approach assumes levels of government control over economic outcomes that probably did not even exist in the Soviet Union, let alone modern market economies.

Arnaldo Abruzzini, secretary-general of EuroChambres, the European association of chambers of commerce, spoke in support of the Commission's proposals.

"The Commission rightly focuses on ensuring that the member states put and keep their house in order. If a private business managed its budget in the same way as some of our national governments, it would simply be declared bankrupt. This new framework, which virtually puts an end to the 'à la carte' approach to the Stability and Growth Pact rules, should oblige national governments to adopt a more prudent, business-like approach to running their budgets," he said.

"A more enforceable and stable EU and particularly euro area fiscal framework will help put Europe on a path towards long-term sustainability," he added, describing the mechanism proposed as a key improvement in economic policymaking at European level and the European semester as "a positive step towards stronger ex-ante coordination of fiscal and macroeconomic policies".