MADRID – Some European Union countries have seen «worrying developments» on public debt, with Italy and Greece causing the most concern, EU Monetary Affairs Commissioner Pedro Solbes said in an article published yesterday. Solbes also said that the first four years of Economic and Monetary Union (EMU) had highlighted «important shortcomings» in the implementation of the EU’s Stability and Growth Pact, which seeks to impose budget discipline on member states. Among these defects, Solbes acknowledged that «conflicting statements on the appropriate conduct of budgetary policies have hampered effective communication» with the press and markets. Under European Commission proposals to ensure effective implementation of the pact, «early warnings» could be sent to EU member states even if their budget deficits were some way below the pact’s 3 percent of GDP limit, Solbes said in a bulletin published by the Flores de Lemus Institute of Madrid’s Carlos III University. After outlining the budget deficit problems experienced by Portugal, France and Germany, Solbes wrote, «There are also worrying developments as regards government debt where slight increases have been recorded in several member states.» «Italy and Greece give most cause for concern, as their government debt levels remain well above 100 percent of GDP and very little progress was made in the past four years to reduce debt levels,» he said. In November, the European Commission set out proposals for better enforcement of EU budget rules to give Brussels greater power to make member states reduce high debt levels and reward low-debt countries. The proposals followed persistent criticism of pact rules by some eurozone politicians and even from European Commission President Romano Prodi who called them «stupid.» Criticism expected Noting the criticism, Solbes said, «In a way, it could be expected that the issue of amending the core requirements of the Treaty and the Stability and Growth Pact would come up at a time that the rules begin to bite.» But he added: «It is evident that the existing rule-based framework for the coordination of budgetary policy remains appropriate and is essential for the smooth functioning of EMU.» However, he conceded there had been difficulties with the implementation of the Stability Pact. Member states continued to subscribe to the goals of the pact, but in some countries there had been a «growing divergence between budgetary commitments and concrete actions to achieve stated targets.» Among other difficulties, it had been difficult to set clear and verifiable budget objectives that took account of underlying economic conditions; some member states did not run sound budgetary policies in good economic times; the Stability Pact’s enforcement procedures had been found wanting at critical times and the application of the pact was not designed to deal with country-specific circumstances in a consistent manner, he said. It had also been difficult to communicate effectively with the press, markets and public on the benefits of sound public finance, he said. Solbes said the European Commission was proposing ways to back up EU fiscal rules with «effective and credible» enforcement procedures. Three factors should be taken into account when assessing slippage from budgetary targets: the size of the slippage, whether it could be explained by cyclical or discretionary factors, and the possibility of deficits rising and approaching the 3 percent of GDP limit, he said. «These proposals would imply that an early warning could be sent to a member state even if its nominal or underlying budget balance is some way below the 3 percent of GDP reference value,» Solbes said. «Furthermore, an inappropriate pro-cyclical loosening of the budget in good times.. . should be viewed as a violation of budgetary requirements at EU level,» he added. To improve communication, Solbes said the European Commission intended to make public its hitherto-secret detailed assessment of the stability and convergence programs submitted by member states which contain their medium-term budget plans. In July each year, the Commission will also publish a mid-year review of budgetary developments examining how member states are faring in meeting their budget targets.