Schaeuble calls for ESM to become euro zone fiscal guardian

By Tatiana Jancarikova and Jan Lopatka

BRATISLAVA (Reuters) - Germany's finance minister on Friday proposed shifting some of the task of enforcing euro zone budget rules away from the European Commission, which has repeatedly given way to governments' pleas to be allowed to break fiscal limits.

Wolfgang Schaeuble said the Commission's "political" nature made it difficult to impose compliance on governments - and that the job of enforcement should be instead partly handed to the European Stability Mechanism, the euro zone bailout fund.

Germany, and especially Schaeuble himself, have shown long-term frustration with the Commission's leniency towards France, which has been in breach of the rules for years, as well as Spain, Italy and Portugal.

The EU body has repeatedly backed away from imposing sanctions on governments.

"Normally, implementation is the job of the European Commission. The current Commission has chosen to be more political and it has every right to do so," Schaeuble told a conference in Bratislava.

"But this makes it more difficult to impose compliance," he said. "Perhaps the European Stability Mechanism could play a role in partial compliance in those cases where the Commission can't."

Schaeuble also raised the idea in a newspaper interview earlier this month.

EU Economic and Financial Affairs Commissioner Pierre Moscovici, sitting on the same panel, disputed Schaeuble's idea.

He said the Commission had a democratic mandate, given its relation to the European governments and the European Parliament, delivered results and took its decisions in accordance with existing rules.

"I think this should still be in the Commission," Moscovici said.

COMMISSION "GETTING BETTER"

"I think we are getting better equipped with the fact that we will have a European fiscal board which will advise us and that will be established by next week and start its role."

EU countries are supposed to keep budget deficits below 3 percent of gross domestic product and limit debt to 60 percent of GDP.

Moscovici said the Commission had been effective in reducing average budget gaps across the euro zone in recent years.

It was also better placed to be flexible in dealing with the specific circumstances of individual countries than a purely technical body like the ESM, he said.

"It's clear we need to take into account some circumstances, structural reforms, investment, natural phenomena, earthquakes, fight against terrorism, all the work, and integration of refugees," Moscovici told a news conference.

"This explains why the (EU fiscal rules) pact is no more a rigid, stupid, pro-cyclical tool. It has become much more subtle, intelligent, but I think we need flexibility always in the framework of rules."

Italy is currently asking the Commission to allow it to break the rules in its 2017 budget, partly because of the demands of earthquake reconstruction and the wave of migrants to its shores.

"I think that dialogue is always better than sanctions, that incentives are always better," Moscovici said.

"But if at one moment sanctions prove necessary, my hand will be firm and I won't hesitate to propose that."

In April, EU auditors said the Commission was inconsistent in how it applied fiscal rules and criticised the bloc's executive for being too lenient on Italy and France.

(Reporting by Jan Lopatka and Tatiana Jancarikova; Editing by Andrew Roche)

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