07 September 2011

FT: Expulsion from the eurozone has to be the final penalty

Dutch Prime Minister Mark Rutte and Dutch Minister of Finance Jan Kees de Jager say that the agreements that have been made must be anchored more firmly, and tougher action taken to enforce them.

Strict budgetary rules were laid down in the Stability and Growth Pact, a no bail-out clause was included in the relevant treaty. So far so good. But the main cause of the current problems is that some countries played fast and loose with the very rules designed to guarantee budgetary discipline. Other countries allowed that to happen, and this took place at a time when the financial markets were being rapidly integrated. The result is that acute financial problems can spread from one country to another at lightning speed.

If the eurozone is to survive in its present form as a stable currency union that supports the internal market and our prosperity, there needs to be a radical break with the past. What Rutte/Kees de Jager propose is twofold, and builds on the ideas already put forward by the French and German leaders. First, they call for independent supervision of compliance with the budgetary rules. Second, they believe that countries that systematically infringe the rules must gradually face tougher sanctions and be allowed less freedom in their budgetary policy.

Independent supervision requires a commissioner for budgetary discipline. His or her powers should be at least comparable to those of the competition commissioner. The final stage will involve preventive supervision, and the budget will have to be approved by the commissioner before it can be presented to parliament. At this stage, the Member State’s voting rights can also be suspended. Countries that do not want to submit to this regime can choose to leave the eurozone. Whoever wants to be part of the eurozone must adhere to the agreements and cannot systematically ignore the rules.

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