Sept 29 (Reuters) - The European Commission proposed on Wednesday new sanctions for euro zone countries that break the European Union's budget rules. [ID:nLDE68S0JE]
Following are the main point:
BEFORE TROUBLE STARTS
MACROECONOMIC IMBALANCES
The Commission will monitor the economies of the 27 EU countries, using a scoreboard of indicators.
If the analysis points to severe imbalances in a country, EU finance ministers may put the country in an excessive imbalances procedure and recommend action to be taken by a deadline. The policy recommendations could address fiscal, wage and macro-structural as well as macro-prudential policy aspects.
If a country repeatedly (which means twice) ignores the recommendations, it will pay a yearly fine of 0.1 percent of GDP, until ministers decide 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 so-called medium-term objective (MTO). The rules say that until this goal is reached, the deficit cut should be at least 0.5 percent of GDP a year.
The Commission says annual spending growth should not exceed a prudent medium-term rate of growth of GDP, unless the MTO has been attained or the excess is compensated by spending cuts.
The aim is to prevent revenue windfalls being spent rather than being allocated to debt reduction.
If a country does not do that, it will be warned by the Commission. If it persistently ignores the warning or the infraction is particularly serious, finance ministers may order it to make an interest-bearing deposit of 0.2 percent of GDP.
ALREADY IN TROUBLE
DEFICIT ABOVE 3 PCT/GDP
EU countries which have budget gaps 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 finance ministers are ignored. If the recommendations are repeatedly ignored, the fine could be increased.
DEBT ABOVE 60 PCT/GDP
The EU's cap for debt-to-GDP ratio is 60 percent, and those who have higher debt are obliged to cut it in a sufficient way.
The Commission defines 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 can be placed in the excessive deficit procedure, which entails a non-interest bearing deposit of 0.2 percent of GDP.
The Commission says the decision would not be automatic and would take into account factors such as low nominal growth, risk factors linked to the structure of debt, private sector indebtedness and implicit liabilities related to ageing.
SANCTIONS MORE AUTOMATIC
To avoid discretionary decisions 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
New EU rules should become part of national laws. 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.
(Reporting by Jan Strupczewski, editing by Marcin Grajewski, Ron Askew)