The European Commission has unveiled plans for a radical reform of the European Union's economic governance to tackle the underlying causes of the current debt crisis in the euro area.
The commission proposed that the EU member nations should coordinate their fiscal policies more closely and present their national budgets to the EU from 2011 onwards for a "peer review" before presenting them to their national parliaments in order to prevent another debt crisis.
The commission also wants close monitoring of the competitiveness of member nations and to impose sanctions on those countries which repeatedly violate the rules of the EU's Stability and Growth Pact.
The commission suggested that the three-year limit envisaged for the massive 750 billion-euro (nearly a trillion-dollar) financial rescue package for the euro area, which was agreed by the EU finance ministers last Sunday, be extended indefinitely.
The commission's proposals are intended to prevent a recurrence of the debt crisis. The commission believes that perhaps it could have detected the manipulation of the Greek budget if it had a chance to review it.
Presenting the commission's reform proposals in Brussels on Wednesday, the Commissioner for Economic and Monetary Affairs Olli Rehn said the rescue package involving credits and loan guarantees from the EU and the International Monetary Fund must be backed by measures to reduce the deficits, eliminate macro-economic imbalances and to revitalise the economies.
The debt crisis in Greece has shown that "it is high time to strengthen economic policy coordination in Europe," Rehn said.
"The inter-dependence of the European economies is higher than ever before, in particular in the euro area." Even though the first ten years of the common currency has been a success, good times were not used to reduce budget deficits and macro-economic imbalances were neglected, he said.
"The backlash of these shortcomings have been severe: Twenty years of fiscal consolidation has been wiped out in two years and the financial stability of the euro area as a whole has been put at risk."
Rehn said a cornerstone of reinforced economic governance proposed by the commission is to coordinate fiscal policies in advance in order to ensure that the national budgets are consistent with the EU rules and they do not put at risk the stability of other member states.
Image: Olli Rehn
