Germany calls for EU balanced budgets

August 9, 2011 - 9:29 AM

BERLIN (AP) — Germany on Tuesday called on all members of the 17-nation eurozone to amend their constitutions "as quickly as possible" to require a balanced budget in a bid to avoid a repeat of the bloc's sovereign debt crisis.

The European Union should also set up a new institution to monitor the member states' competitiveness, keeping budgets and fiscal policies in check, German Vice Chancellor Philipp Roesler said.

Roesler, who also serves as the economy minister, says the new body, dubbed stability council, must have the power to act if member states fail to meet certain criteria, ensuring "that their competitiveness will again be reached."

He did not elaborate on the new body's possible powers.

Germany will propose the changes at the next meeting of EU economic and finance ministers, he said.

Roesler vowed to swiftly and fully implement the decisions of the recent EU summit, including the changes to the bloc's European Fund for Southeast Europe overall bailout fund. Funded by the European Union and business donors, it provides long-term funding for micro and small businesses, as well as housing and rural finance.

However, Roesler said those "short-term measures that won't be sufficient" to fix the underlying problem, instead requiring "a new European stability pact."

"We need this new culture of stability in the context of the European Union," he said.

The European Union is in the process of overhauling its so-called Stability and Growth Pact, which was meant to ensure that all members kept their debts below 60 percent of economic output and their deficits below 3 percent. That pact was flaunted by many countries, including Germany, in the years before the crisis.

While Germany initially pushed for stricter and more automatic sanctions on countries breaking the rules, it has since backed a loosening of new proposals from the European Commission, triggering harsh criticism from countries such as the Netherlands and the European Central Bank.

The new proposals are currently stuck at the EU level, where member states, including Germany, are resisting attempts from the European Parliament to toughen the sanction regime.

Germany itself has adopted a constitutional amendment, the so-called "debt brake," which requires the country to run a budget surplus before interest payment within a few years.

Italy — after coming under pressure amid rising yields on its sovereign bonds — said Friday it would seek to amend its constitution to require the government to balance its budget.