EU unveils deficit sanctions as unions protest

The European Commission proposed steep compulsory deposits and fines on Wednesday for euro zone countries that breach EU budget rules, as trade unions staged strikes and protests against austerity measures.
In a sign of the new "get tough" policy on fiscal deficits, euro zone sources said finance ministers of the single currency area would grill Portugal on its 2011 budget plans on Thursday and press for more radical measures to address market concerns.
Spain's first general strike for eight years disrupted public transport and some factories but seemed unlikely to make Socialist Prime Minister Jose Luis Rodriguez Zapatero back down on wage cuts, spending curbs, pension and labour market reforms.
The European Trade Union Confederation said at least 100,000 joined a pan-European anti-austerity march in Brussels. Police put the crowd at 56,000 and said 218 people were detained for minor offences. Up to 5,000 demonstrators marched in Warsaw but other rallies appeared smaller.
Under pressure from investors who fear another Greek-style meltdown, Ireland was preparing to announce a massive bill for rescuing stricken Anglo Irish Bank, while government and opposition leaders in Portugal wrangled over spending cuts or tax hikes to narrow that country's yawning deficit.
The European Union executive outlined plans to prevent any repetition of Greece's debt crisis by making repeat deficit offenders deposit 0.2% of their gross domestic product with Brussels.
The interest-bearing deposit would be converted into a fine unless the country in breach took effective action to cut the budget gap below EU limits. If a country repeatedly ignored recommendations to rectify severe economic imbalances in wage, macroeconomic and fiscal policy, it would incur a yearly fine of 0.1% of GDP until EU finance ministers decided corrective action had been taken.
The proposals require approval by EU governments and the European Parliament, with Germany and France apparently still at odds about how automatic the application of penalties should be and whether politicians should retain the final say.
The new EU budget rules, demanded by chief paymaster Germany as the price for bailing out Greece and providing a wider safety net for the euro zone in May, aim to prevent any state fiddling its statistics and running up unsustainable deficits in future.
However, some economists argue that stiffer penalties for deficit sinners will not solve the euro zone's problems since harsher austerity may choke economic growth in those countries and increase unemployment, further straining public finances.
France, determined to cling to its AAA credit rating which enables it to service its debt at low market rates, announced a 2011 budget designed to reduce the deficit to 6% of GDP from an expected 7.7% this year.