ECB chief opposes new EU budget rules

[October 21, 2010]  BRUSSELS (AP) -- The European Central Bank's chief does not support all the proposed new budget rules for the eurozone that leave penalties for overspending nations up to EU governments, who in the past have shown themselves unwilling to impose any.

The draft plan -- put together by a task force of EU finance ministers, EU President Herman Van Rompuy and ECB chief Jean-Claude Trichet -- was published Thursday.

Crucially, they include a disclaimer that Trichet "does not subscribe to all elements" of the proposed economic governance package.

An ECB spokesman declined to say what parts Trichet does not endorse.

A spokesman for Van Rompuy, who led the task force, said Trichet asked for the footnote to be included on Wednesday.

EU heads of state will discuss the proposed rules at a summit next week. After that, they must be approved by the European Parliament.

The economic governance proposals form part of the bloc's efforts to avoid another government debt crisis like the one that has grasped nations including Greece, Ireland and Spain.

The rules spell out penalties against nations that violate or come close to breaking EU limits on public deficits and debts of 3 percent and 60 percent of gross domestic product respectively.

But before the European Commission, the EU's executive, can impose fines a clear majority of eurozone governments must vote on whether a nation has run afoul of the rules -- a condition giving governments a firm hand on the wheel of the eurozone.

The European Commission has said it will continue to push for automatic fines for overspenders. In that case, governments will effectively have less power to stop sanctions.

Ceilings for eurozone government deficits have existed for years, but were repeatedly flouted without consequences. Several EU states -- including Finland, Sweden, the Netherlands and, initially, Germany -- had pushed for the commission to get more power to penalize overspenders.

However, Germany softened its stance on automatic penalties, after it won support from France for changes to EU treaties that would allow for a permanent crisis resolution mechanism.

Such a mechanism would force creditors to shoulder some of the costs if a nation can no longer service its debts. Any changes to EU treaties are likely to take several years.

[Associated Press; By GABRIELE STEINHAUSER]

Associated Press writer Geir Moulson in Berlin contributed to this report.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.