EU to incorporate objections on debt, sanctions

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EU leaders will incorporate an Italian plan to take account of private debt in threatened eurozone countries under plans for tighter budget surveillance, according to re-drafted summit conclusions seen by AFP on Wednesday.

In another amendment, to meet British objections to the creation of sanctions for persistent deficit bingers, leaders are also expected to agree that these should not go further than allowed under existing EU treaties.

The summit of heads of European Union government and state, meeting in Brussels on Thursday, is also set to agree to give "a much more prominent role to debt levels and sustainability, as originally foreseen in the Stability and Growth Pact", the bloc's rulebook on national deficit and debts, which has largely been ignored since recession.

Diplomats say the addition of the phrase "and sustainability" means a willingness to use aggregate debt levels, public, banking and private, in determining risk.

Italy, which has one of the highest levels of public debt in the EU, but which has much more modest private debts, had threatened to veto the text, aimed at allowing EU watchdogs to focus on the longer-term threat to European financial stability, if leaders did not draw this distinction.

"There are other countries like Spain that have low public debt levels, but that have faced speculative bubbles fed by private debt," said one diplomat, referring to the 53.2 percent of output, comfortably inside the pact's 60 percent threshold.

Debt within the Spanish private sector stands at 178 percent, and the diplomat said a "compromise" taking account of the "general direction" of a country's debts was what was sought.

In another change added by ambassadors before leaders examine the final positions on Thursday, "possible sanctions or incentives" for medium-term deficit reduction, designed to bring wayward spenders into line, will only be introduced, following detailed legal examination, if "due account" is taken of ties between "members of the euro area and of member states' obligations under the (EU) treaties".

The latter part of that phrase was added amid British objections to anything that could "impose new (treaty) obligations".

"Sanctions are already in the treaty, measures can be enforced but they never have been," stressed one European diplomat.

"The question is how much political will is there to use what's already there? So do we need more?"

© 2010 AFP

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