I wonder if Greece was actually sanctioned?  I can’t find relevant news articles, but this one suggests they were not (it suggests Hungary will be first country sanctioned).

EU FINANCE ministers have backed a European Commission plan to impose financial sanctions against Hungary over its budget deficit, the first such move against any member of the union.

The development, if followed through by the ministers, would see Budapest deprived of some €495 million in EU cohesion funding.

The procedure against Hungary represents a key test of a new system to toughen the enforcement of EU budget rules, one which will be underpinned by Europe’s new fiscal treaty.

A good short article by Mark Spiegel:

The Growth and Stability Pact proposes regulations which strengthen the surveillance of budgetary positions and defines the procedure for handling excessive deficits. Under this pact, each EMU member is committed to a medium-term budgetary position of close to balance, or surplus. This policy allows for some movements of the budget deficit over a business cycle due to “automatic stabilizers.” For example, budgets which are balanced under full employment will go into surplus and deficit by themselves during booms and busts respectively, due to fluctuations in government revenues and social spending. Nevertheless, the stability pact forbids countries from running government deficits in excess of 3 percent of gross domestic product.

The surveillance measures are designed to insure that nations which are in danger of violating budgetary guidelines are identified early. Member states will be required to publicly announce stability programs which specify their budget objectives and make plans for adjustment in the government budget as needed to achieve compliance. The European Commission and the European Council will also monitor countries’ budget positions to give early warning to a member state whose budget path appears to be headed towards excessive government deficit.

The more controversial component of the Growth and Stability Pact concerns the provision of sanctions for nations running excessive deficits. The Commission will prepare a report whenever a nation’s actual or planned government deficit exceeds the 3 percent benchmark. The stability pact does make exceptions for excessive deficits resulting from major economic downturns. In order to qualify for exception, however, countries must suffer an annual fall in GDP of at least 2 percent. Such a downturn would be severe; for example, France has not experienced a downturn of this magnitude in the post-war era.

Should the European Commission report an excessive deficit, the Economic and Financial ECOFIN Committee will then report an opinion to the European Council concerning the Commission report. The European Commission, taking the ECOFIN report into account, will then recommend to the European Council whether or not to excuse an excessive deficit as exceptional.

The stability pact gives the European Council some discretion in making the decision whether or not to excuse the excessive deficit. In particular, it may consider an annual fall of less than 2 percent of exceptional nature in “… light of supporting evidence, in particular on the abruptness of the downturn or on the accumulated loss of output ….” The European Council Resolution on the Stability and Growth Pact provides a benchmark value of a 0.75 percent decrease in real output for an “abrupt downturn” meriting exception.

If the European Council does decide that an excessive deficit exists, it will set clear deadlines for policy adjustments. Countries with excessive deficits are expected to begin taking action within four months of the identification of a violation, and the deficit should be brought into compliance within a year of identification of a violation. If a member state fails to comply with the recommendations of the European Council, sanctions are to be imposed on the country in violation within ten months of identification of a violation. However, if the European Council perceives that the violating nation is complying with its policy recommendations, it may hold the sanctions in abeyance and continuously monitor the offending nation until its deficits are at acceptable levels.

In the event that sanctions are implemented, the stability pact calls first for countries to contribute non-interest bearing deposits of a fixed component, not to exceed 0.2 percent of GDP, and a variable component equal to 0.1 times the excess of the government deficit as a percent of GDP over 3 percent. The overall sanction amount cannot exceed 0.5 percent of GDP. There is still a difference of opinion concerning how this ceiling should be applied. Germany, the Netherlands, and the European Commission want the fines to be applied cumulatively, while most other member states want 0.5 percent of GDP to represent an “absolute ceiling,” even for a deficit which persists for a number of years.