Sept 27 (Reuters) - The European Commission will on Wednesday propose new sanctions for euro zone countries that break the European Union's budget rules.
Below are the main points in the European Union executive's proposals, which are intended to regain market confidence in euro zone public finances and were obtained by Reuters.
BEFORE TROUBLE STARTS
MACROECONOMIC IMBALANCES
The Commission will regularly monitor the economies of the 27 countries in the bloc, using a scoreboard of indicators to detect major imbalances.
If the Commission's analysis points to severe imbalances in an EU country, EU finance ministers may put the country in an excessive imbalances procedure and recommend action to be taken by a certain deadline. The policy recommendations could address fiscal, wage and macro-structural as well as macro-prudential policy aspects.
If a country repeatedly ignores the recommendations, it will pay a yearly fine of 0.1 percent of GDP, until EU finance ministers establish that corrective action has been taken.
AIMING FOR A BALANCED BUDGET
All EU countries have a medium-term goal of reaching a budget close to balance or in surplus. The rules say that until this goal is reached, the deficit reduction should be at least 0.5 percent of GDP a year.
If a country does not do that, it will first be warned by the Commission. If it persistently ignores the warning or the infraction is particularly serious, EU finance ministers will make a recommendation for corrective action.
For euro zone countries this would also mean making an interest-bearing deposit of 0.2 percent of GDP.
ALREADY IN TROUBLE
DEFICIT ABOVE 3 PCT/GDP
Under EU rules, countries which have budget deficits above 3 percent of GDP are placed in what is called an excessive deficit procedure -- disciplinary action at the end of which, for euro zone countries, there could be fines.
Under the new proposals, such countries would have to make a non-interest bearing deposit of 0.2 percent of GDP when the procedure is started. This deposit could then be converted into a fine if recommendations for corrective action from EU finance ministers are ignored. If the recommendations are repeatedly ignored, the fine could be increased.
DEBT ABOVE 60 PCT/GDP
The ceiling for debt-to-GDP ratio in the EU is 60 percent, and those who have higher debt are obliged to reduce it at a sufficient pace towards that level.
The Commission now wants to quantify the word "sufficient", saying the excess over 60 percent should be reduced by one twentieth every year for three years, for the pace to be deemed enough.
If is slower, the country could be placed in the excessive deficit procedure, which entails a non-interest bearing deposit of 0.2 percent of GDP at the beginning.
The Commission says, however, that the decision would not be automatic and would take into account all relevant factors, such as if very low nominal growth is hampering debt reduction, risk factors linked to the structure of debt, private sector indebtedness and implicit liabilities related to ageing.
SANCTIONS MORE AUTOMATIC
To reduce the scope for discretionary decisions leading to or blocking sanctions by EU finance ministers, the Commission wants the whole process to be semi-automatic.
This would mean that only a qualified majority of EU ministers could stop the sanctions from being imposed, rather than, as it is now, a qualified majority has to express support for the sanctions to kick in.
NATIONAL SUPPORT NECESSARY
To make sure that EU rules are observed, they should become part of national laws in EU countries. Accounting, statistical and forecasting practice should reflect minimum European standards.
National budgetary frameworks should plan for several years ahead to make sure the goals set at EU level are met.
EU countries must also have in place numerical fiscal rules which would help keep debt and deficit under control Governments should also guarantee the transparency of the budget process by providing detailed information on the existing extra-budgetary funds, tax expenditures and contingent liabilities.
(Reporting by Jan Strupczewski, editing by Timothy Heritage)