UPDATE 2-Ministers agree to EU vetting of future budget plans

* EU countries to submit budget plans for peer review

* Move is part of efforts to toughen EU budget rules

* Stiglitz says budget austerity in Europe is a mistake (Adds more quotes after the meeting, detail)

By Jan Strupczewski and Marcin Grajewski

BRUSSELS, Sept 7 (Reuters) - European Union finance ministers agreed on Tuesday to submit budget plans for early review by the European Commission and other EU governments as part of moves to strengthen fiscal discipline in the bloc.

The process, called the European Semester, is to start from 2011. Governments in the 27-nation EU will send the main budget outlines to the executive Commission by the end of April.

"This ... will allow the economic and budgetary policies of the member states to be monitored in parallel during a six-month period every year, so as to detect any inconsistencies and emerging imbalances," the EU ministers said in a statement.

They also discussed bank levies and taxing financial transactions during their meeting but said there was still no agreement.

"There was discussion ... on one side about the bank levy and on the other side the taxation of financial transactions. I must confess that there is no unanimity for the moment," said Belgian Finance Minister Didier Reynders.

The agreement on sharing information on budget plans is the most tangible result so far of work done by the ministers since May in an effort to toughen EU budget rules and prevent another sovereign debt crisis like the one triggered by Greece.

But Nobel Prize-winning economist Joseph Stiglitz, speaking in Budapest, criticised the European Union's austerity drive saying it would only prolong the global downturn.

He said austerity as a policy to end the global crisis was a "disaster" and that Europe was heading towards more economic difficulties if politicians meant what they said when they promised to cut spending rather than just try to calm markets.

In France, trade unions organised strikes and massive street protests on Tuesday against unpopular reforms that raise the retirement age by two years to improve public finances.

EU ministers agreed that the European Commission will check if their budget plans are in line with economic guidelines set by EU leaders every March, national long-term deficit-cutting plans and reforms that often have to accompany fiscal cuts.

The Commission will then write an opinion and euro zone and EU finance ministers will discuss the draft budget plans at regular monthly meetings in June and July.

The EU is hoping such rigid oversight and peer review will prevent overspending and head off future debt problems, the cause of so much market turmoil and euro weakness this year.

NATIONAL SOVEREIGNTY

The timing gives the EU a chance to look at budgets and reforms that will have a clear impact on other EU countries, but have not yet been voted into law by a national parliament.

This would help side-step the politically sensitive issue of the sovereignty of national parliaments' decisions on final budget proposals -- a problem often raised by Britain.

The review would focus only on the main parameters of the budget drafts, allowing Britain to stick to its position that the British parliament must see the full budget first.

"We will present the spring budget to parliament as chancellors (finance ministers) have done in the past," British finance minister George Osborne said after the meeting.

"The elected House of Commons (parliament) will hear the budget information first. Then of course we will transmit that information to the Commission."

EU Economic and Monetary Affairs Commissioner Olli Rehn said that in the drive to update EU budget rules, ministers were taking seriously a request from nine EU countries to deduct pension reform costs from deficit and debt calculations.

The nine countries, mainly central and eastern European states and Sweden, believe that if such costs are not deductable, it would penalise those who try to put their public finances on a more sustainable footing.

Diplomats have pointed to Germany as the main opponent of deducting such costs from overall deficit numbers, although German Finance Minister Wolfgang Schaeuble appeared flexible.

"We are always ready to talk ... We will find a solution together ... I am not pessimistic," Schaeuble told reporters.

Slovak Finance Minister Ivan Miklos, however, was sceptical when asked if the nine countries are likely to get their way.

"Unfortunately, I don't think so. I think it is a relevant position, there are real reasons for it, but I don't see an overall consensus on supporting this," he told Reuters.

BANK LEVY

The ministers also had a preliminary discussion about a bank levy in the EU and a possible financial transaction tax as governments seek to create a financial buffer to help financial institutions in case of another crisis. [ID:nLDE6860LW]

No decisions on the levy or tax have been taken, with more detailed discussions to follow at an informal meeting of the ministers and EU central bank governors at the end of the month.

While most ministers agree to tax banks more, they disagree chiefly over what should be done with the money.

Meanwhile, economic recovery is gathering pace in the EU and growth this year will be higher than initially forecast, European Commission President Jose Manuel Barroso said.

Delivering an annual "State of the Union" speech to the European Parliament in Strasbourg, the head of the EU executive said the 27-country bloc had come through the economic crisis strongly but risks remained.

Euro zone finance ministers, meeting in the afternoon, were due to agree to reduce the total amount of euro zone aid available to Greece by the contribution from Slovakia, whose parliament voted in August not to take part in the programme.

That would cut the amount available to Greece from the euro zone by 816 million euros over three years, leaving more than 79.1 billion euros still available, as well as another 30 billion from the International Monetary Fund. [ID:nLDE6860J2]

But there was clear dissatisfaction with Bratislava's decision: "We expressed the view that Slovakia refusing to be part of the Greek package is totally unacceptable," the chairman of euro zone finance ministers Jean-Claude Juncker said. (Reporting by Ecofin team; Editing by Ron Askew and Susan Fenton)