UPDATE 3-EU draft urges more focus on growth, jobs

Mon Jun 23, 2014 12:32pm EDT

Related Topics

* Document backs "differentiated fiscal consolidation"

* EU leaders to consider calls at June 26/27 summit

* Few specifics in draft proposals

* Italy: EU rules allow flexibility in return for reforms

* Italy also seeks help with Mediterranean migrant crisis (Adds Italian, Dutch economy ministers, detail on EU budget rules)

By Giselda Vagnoni and Francesco Guarascio

BRUSSELS/ROME, June 23 (Reuters) - European leaders will consider calls to interpret EU budget rules with more emphasis on economic growth, according to the draft conclusions of a direction-setting summit in Brussels this week.

The document drafted by European Council President Herman Van Rompuy in consultation with Italy, the next country to hold the rotating EU presidency, marks an effort to reset the EU agenda away from the budget cuts and tax squeezes that characterised the initial reaction to the euro zone debt crisis.

With much of Europe still struggling to return to sustainable growth and with unemployment rates at record levels in many areas, pressure for a change of course was underlined by a surge in support for anti-EU parties in last month's European Parliament election.

The draft, which could still change before the summit on Thursday and Friday, calls for steps to create growth and jobs and to support deeper reform by individual member states. However it does not call for a change to the rules set in EU fiscal pacts and contains few specifics.

"Given the persistently high levels of public debt, growth-friendly and differentiated fiscal consolidation must be continued," the document says.

"Recovery remains fragile and uneven and efforts must continue and be enhanced in order to strengthen Europe's capacity to grow and create jobs," it says.

The conclusions are regular statements of the outcome of EU summits. The leaders are also expected to adopt a separate Strategy Agenda for the EU for the next five years and nominate former Luxembourg Prime Minister Jean-Claude Juncker as the next president of the European Commission on Friday.

The economic proposals form part of a wider deal under which centre-left leaders agreed to support Juncker in exchange for policy agreements on growth and jobs.

Germany, long opposed to any relaxation of the EU rules which limit budget deficits to 3 percent of gross domestic product and bind member states to a steady reduction in the public debt, has not openly opposed calls for more flexibility but says the rules must be respected.

"The Stability and Growth pact includes the possibility of a flexible application in individual cases," a German government spokesman told reporters in Berlin.

"WIDE SUPPORT"

Italian Prime Minister Matteo Renzi, strengthened by a triumphant result in last month's European election, has been one of the main promoters of greater budget flexibility in the EU, to complement his pledges for structural reforms at home.

Renzi's Economy Minister Pier Carlo Padoan and his Dutch counterpart Henk Kamp met in Rome on Monday and said in a statement they both saw "the need to put growth and jobs at the top of the agenda".

Renzi's undersecretary in charge of European affairs, Sandro Gozi, told reporters there was "very wide support for our priorities and our methods," as Italy assumes the EU presidency.

The details of what calls for flexibility might mean in practice have remained sketchy but Italy has in the past sought to have spending on infrastructure investment and research excluded from deficit calculations. It has also sought to win more time to bring its structural budget deficit, adjusted for the effects of the business cycle, into balance.

Italian officials refer to a clause in existing EU rules which already allows for the possibility of temporary deviation from countries' agreed budget goals, especially if there has been "implementation of major structural reforms which have direct long-term positive budgetary effects, including by raising potential sustainable growth, and therefore a verifiable impact on the long-term sustainability of public finances."

An EU official told Reuters that the key word in this clause is "implementation," meaning that reforms must be carried out and applied, not merely announced.

This suggests the political negotiations for Renzi, who took office in February, may not be straightforward. He has an ambitious agenda but little of it has been implemented so far.

The discussion has played into horse-trading over roles in the next European Commission, with Britain accusing Juncker of being too inclined to concentrate power in Brussels.

British Prime Minister David Cameron told European Council President Herman Van Rompuy in London that he would demand an unprecedented vote among EU leaders to press his opposition to the appointment but he has few, if any, allies.

Renzi initially expressed some scepticism over Juncker but at a meeting at the weekend with other centre-left leaders he agreed to support his candidacy in exchange for a new approach to budget policy.

Gozi also said Italy would secure a "heavyweight" representative on the new Commission which will be appointed later this year.

Renzi, a longstanding critic of rigid EU deficit rules, was a rare exception among government leaders in the EU poll, winning 40.8 percent of the Italian vote, the best result for any Italian leader since the 1950s.

The draft summit document also calls on the bloc as a whole to assume more responsibility for the southern Mediterranean migrant crisis faced mainly by Italy, Malta, Greece and Spain and to step up measures to ensure energy security. (Additional reporting by Gernot Heller in Berlin; Writing by James Mackenzie and Gavin Jones; Editing by Ruth Pitchford)

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