EU ministers back tougher deficit controls

European Union finance ministers meeting Brussels Friday backed the idea of adopting tougher sanctions for their public finances.

European Union finance ministers meeting in Brussels on Friday backed the adoption of tougher sanctions for their public finances.

EU president Herman Van Rompuy said the talks showed that "it was very clear that there was a broad consensus on the principle of having sanctions" — both financial and political.

Protesters shout slogans outside the European Council headquarters in Brussels Thursday, ahead of a meeting of EU finance ministers. ((Yves Logghe/Associated Press))

Current limits on debt and deficits are backed up on paper by heavy fines, which have never been imposed — effectively allowing Greece and others to ignore them and build up massive debt.

Van Rompuy gave no details of possible new sanctions, because officials from the EU's 27 governments, the European Central Bank and the European Commission are only starting work on changes to widely flouted EU budget rules.

EU leaders are due to decide on long-term reforms at an October summit.

Some EU nations are pushing for penalties and punishments — from stripping member countries of voting powers to ejecting them from the eurozone — for repeatedly racking up deficits.

German Finance Minister Wolfgang Schaeuble has suggested making a deficit limit of three per cent of GDP legally binding, a proposal that has French support.

Britain, which is outside the euro, has already signalled discontent with some proposals for all 27 EU nations to co-ordinate budgets before governments send detailed spending plans to national parliaments.

Britain's is largest

Britain's treasury chief George Osborne said he had "many allies" among EU countries who agreed that parliaments "have to be the first people told about the important tax and spending decisions that countries like Britain have to take."

He said he will set out new budget cuts on Monday, saying he was "very conscious" that Britain has the EU's largest budget deficit.

The Brussels meeting is just the start of EU reforms that will be decided in October.

The meeting came as both houses of Germany's parliament voted for a 750 billion euro ($1 trillion) "shock and awe" package of cash and state guarantees to protect eurozone countries from bankruptcy.

The vote did little to reassure markets. The FTSE 100 index of leading British shares closed down 0.25 per cent while Germany's DAX fell 0.66 per cent, and the CAC-40 in France dropped 0.05 per cent.

With files from The Associated Press