June 26 (Reuters) - Sweden assumes the six-month rotating European Union presidency on July 1, hoping to steer the region out of the global economic crisis while making headway on issues from climate change to EU enlargement.
Following are the main challenges facing its presidency.
MANAGING THE DOWNTURN
The economic outlook for the region is showing some signs of improvement but budget deficits and rising unemployment still threaten to knock any slow recovery off track.
As agreed at an EU summit this month, the Swedish presidency will begin formulating an "exit strategy" for how member states can coordinate national policy to tackle deficits swollen by growth stimulus packages. The presidency will also work to restore confidence in the financial markets by promoting schemes that help restore credit supply.
Acknowledging that the crisis has shown safeguards to be too weak, EU leaders this month backed proposals for a new set of pan-EU bodies to oversee systemic risk in the financial system and to improve day-to-day supervision of key players. The aim is for the European Commission to propose legislation in the autumn, and for the reforms to be fully up and running by the end of 2010. It will be Sweden's job to iron out any remaining differences among member states on the details.
The Swedish presidency will be tasked with bringing together a coherent European position on climate change. It will also be laying the groundwork for what could be a major climate deal in Copenhagen in December, when more than 190 nations try to work out a new U.N. treaty to replace the Kyoto Protocol.
European Union leaders agreed last year to cut emissions by a fifth from 1990 levels by 2020 and have held out the prospect of extending cuts to 30 percent if other big polluters agree on an international deal.
Sweden's presidency will be dominated by an Irish vote on the Lisbon Treaty, designed to streamline EU decision-making and give the bloc more of a say in world affairs.
Ireland, which rejected the treaty in a referendum last year, plans to hold a second plebiscite by early October after winning EU guarantees that policies ranging from military neutrality to abortion would not be affected by the charter.
A "No" vote in Ireland would send the Swedish presidency into damage-limitation mode: Eurosceptics across the region would claim victory, and the 27-nation bloc would have to decide whether to put any idea of institutional reform on ice.
Aside from a possible rejection by Ireland, another obstacle to the necessary ratification of the charter by all 27 states could be Czech President Vaclav Klaus. He says he will wait for all EU countries to ratify the treaty before he signs it.
Sweden has said the door to the European Union remains open for new members and that it expects to make progress in talks with candidates Croatia and Turkey during its presidency. It also anticipates a possible application from Iceland for membership during its six-month term.
However, the presidency is prepared for tough debates over the expansion of the 27-member bloc at a time when enlargement is questioned by several member states.
Croatia's accession talks, originally seen wrapped up by the end of this year, have been held up by a border row with EU member Slovenia. France and Germany have revived calls to offer Turkey a "privileged partnership" rather than membership. Sweden backs Turkey joining the bloc if it meets the requirements.
Observers say the unexpected tends to mark the presidencies of the European Union. The French presidency in late 2008 had to deal with a brief war between Russia and Georgia in August over two rebel Georgian regions. The outgoing Czech presidency had the double whammy of dealing with a gas-pricing dispute between Ukraine and Russia that temporarily cut supplies to some parts of Europe, plus a spiking of Middle East tensions with Israel's invasion of Gaza.
Tensions are mounting in Iran over a disputed election and the EU will have to decide how to proceed with a strategy of trying to draw Tehran into negotiations to halt its uranium enrichment programme -- which the West believes is a cover for their atom bomb despite Iranian denials.
Worries are growing about a repeat of the gas crisis between Russia and Ukraine. The prime minister of gas transit country Slovakia says it is highly probable Russia will cut supplies again in early July. Russia supplies just over a quarter of the European Union's gas needs.
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