BRUSSELS (Reuters) – Tighter oversight of euro zone fiscal policy can be achieved through minor, rapid adjustments to the EU treaty, European Council President Herman Van Rompuy told EU leaders in an interim report to be discussed at a summit on December 8-9.

The aim would be to achieve a “new fiscal compact” that ties euro zone member states more strictly into budget deficit and debt rules, a step that may provide the European Central Bank with room to step up its purchasing of sovereign bonds.

ECB President Mario Draghi used the phrase “new fiscal compact” when he addressed the European Parliament last week, in a comment that suggested the bank would be ready to use more firepower to resolve the debt crisis if the euro zone moved decisively towards a more complete economic union.

“Moving the euro area towards a true economic union requires additional steps in terms of integration, towards a ‘new fiscal compact’,” says the interim report, dated December 6 and obtained by Reuters.

“To restore market confidence in the euro area, and to ensure the political sustainability of solidarity mechanisms, it is crucial to enhance the credibility of our budgetary rules (deficit and debt levels) and to ensure full compliance.”

In the report, compiled after a week of intense consultation with all EU leaders, Van Rompuy also suggests that the euro zone’s permanent bailout fund, the European Stability Mechanism, could be given a banking licence, which would potentially allow it access to vast ECB liquidity.

“Introducing the possibility for the ESM to directly recapitalise banking institutions and to have itself the necessary features of a credit institution,” the report lists as one of four proposed changes to the fund.

BRUSSELS (Reuters) – Tighter oversight of euro zone fiscal policy can be achieved through minor, rapid adjustments to the EU treaty, European Council President Herman Van Rompuy told EU leaders in an interim report to be discussed at a summit on December 8-9.

The aim would be to achieve a “new fiscal compact” that ties euro zone member states more strictly into budget deficit and debt rules, a step that may provide the European Central Bank with room to step up its purchasing of sovereign bonds.

ECB President Mario Draghi used the phrase “new fiscal compact” when he addressed the European Parliament last week, in a comment that suggested the bank would be ready to use more firepower to resolve the debt crisis if the euro zone moved decisively towards a more complete economic union.

“Moving the euro area towards a true economic union requires additional steps in terms of integration, towards a ‘new fiscal compact’,” says the interim report, dated December 6 and obtained by Reuters.

“To restore market confidence in the euro area, and to ensure the political sustainability of solidarity mechanisms, it is crucial to enhance the credibility of our budgetary rules (deficit and debt levels) and to ensure full compliance.”

In the report, compiled after a week of intense consultation with all EU leaders, Van Rompuy also suggests that the euro zone’s permanent bailout fund, the European Stability Mechanism, could be given a banking licence, which would potentially allow it access to vast ECB liquidity.

“Introducing the possibility for the ESM to directly recapitalise banking institutions and to have itself the necessary features of a credit institution,” the report lists as one of four proposed changes to the fund.

BRUSSELS, Dec 5 (Reuters) – Several EU member states are urging Germany to drop its demands for changes to the EU treaty, arguing that deeper fiscal integration in the euro zone can be achieved without overhauling the EU’s fundamental law, EU sources say.

Germany has been pushing since early September to change the EU treaty, maintaining that the only way to enforce much tighter budget discipline among the euro zone’s 17 countries is to enshrine stricter rules in law.

But member states inside and outside the euro zone oppose changing the treaty, saying it will take too long and prove disruptive if all parties including the European Parliament are involved. They are urging Berlin to drop its demands.

“If you go for treaty change at 27, you cannot avoid the convention,” said a senior EU official involved in the discussions, referring to the drawn-out negotiating process.

“You cannot say we’re entering a new stage of fiscal union and at the same time that it’s only a limited treaty change that doesn’t need a convention. The parliament will never take that,” he said.

Instead, several member states and EU negotiators are trying to convince Berlin that most of what it wants to achieve in terms of euro zone fiscal union can be done via existing legislation, without tinkering with the Lisbon Treaty.

“A lot can be done without any treaty change. You can explore all the margins of secondary legislation,” said the official, mirroring the comments made by British Prime Minister David Cameron after he met French President Nicolas Sarkozy in Paris on Friday to discuss issue ahead of a Dec. 8-9 summit.

BRUSSELS (Reuters) – Germany is prepared to soften language in the euro zone’s permanent bailout mechanism compelling bondholders to accept losses in exchange for much stricter budget rules, four sources have told Reuters.

The shift would not completely remove the possibility of private bondholders having to accept losses in the future, but it would align the statutes of the European Stability Mechanism more closely with IMF rules, creating a more-level playing field for private buyers of euro zone sovereign debt.

The hope is that will reassure private bondholders that they are not being singled out for losses by European policymakers, bolstering their confidence in buying euro zone bonds – and potentially helping Italy and other under-pressure borrowers.

Following the insistence earlier this year that private bondholders should share the cost of a second Greek bailout, investors had feared that a precedent had been set which could be repeated any time another euro zone sovereign ran into trouble.

The ESM, which will have a capacity of 500 billion euros, is scheduled to come into force in mid-2013 and will replace the current bailout fund, the European Financial Stability Facility, which the euro zone is struggling to leverage into a more effective fighting force.

While acknowledging movement in Germany’s position, a senior euro zone source emphasised that it depended on securing agreement among the 17 euro zone countries on stricter budget oversight, including sanctions for those that miss macroeconomic targets and the possibility of taking transgressors to court.

The source said private sector involvement — the ability to have banks and insurance companies share losses when a sovereign defaults or restructures its debt — would not disappear from the ESM, “but the wording could be eased”.

BRUSSELS (Reuters) – Germany is prepared to soften language in the euro zone’s permanent bailout mechanism compelling bondholders to accept losses in exchange for much stricter budget rules, four sources have told Reuters.

The shift would not completely remove the possibility of private bondholders having to accept losses in the future, but it would align the statutes of the European Stability Mechanism more closely with IMF rules, creating a more-level playing field for private buyers of euro zone sovereign debt.

The hope is that will reassure private bondholders that they are not being singled out for losses by European policymakers, bolstering their confidence in buying euro zone bonds – and potentially helping Italy and other under-pressure borrowers.

Following the insistence earlier this year that private bondholders should share the cost of a second Greek bailout, investors had feared that a precedent had been set which could be repeated any time another euro zone sovereign ran into trouble.

The ESM, which will have a capacity of 500 billion euros, is scheduled to come into force in mid-2013 and will replace the current bailout fund, the European Financial Stability Facility, which the euro zone is struggling to leverage into a more effective fighting force.

While acknowledging movement in Germany’s position, a senior euro zone source emphasised that it depended on securing agreement among the 17 euro zone countries on stricter budget oversight, including sanctions for those that miss macroeconomic targets and the possibility of taking transgressors to court.

The source said private sector involvement (PSI) — the ability to have banks and insurance companies share losses when a sovereign defaults or restructures its debt — would not disappear from the ESM, “but the wording could be eased.”

BRUSSELS (Reuters) – Germany and France are exploring radical methods of securing deeper and more rapid fiscal integration among euro zone countries, aware that getting broad backing for the necessary treaty changes may not be possible, EU officials say.

Germany’s original plan was to try to secure agreement among all 27 EU countries for a limited change to the Lisbon Treaty by the end of 2012, making it possible to impose much tighter budget controls over the 17 euro zone countries — a way of shoring up the region’s defenses against the debt crisis.

But in meetings with EU leaders in recent weeks, it has become clear to both German Chancellor Angela Merkel and French President Nicolas Sarkozy that it may not be possible to get all 27 countries on board, EU sources say.

Even if that were possible, it could take a year or more to finally secure the changes while market attacks on Italy, Spain and now France suggest bold measures are needed within weeks.

As a result, senior French and German civil servants have been exploring other ways of achieving the goal, either via an agreement among just the euro zone countries, or a separate agreement outside the EU treaty that could involve a core of around 8-10 euro zone countries, officials say.

No firm decisions have yet been reached.

Reuters exclusively reported on November 9 that French and German officials were discussing plans for a radical overhaul of the European Union to establish a more fiscally integrated and possibly smaller euro zone.

BRUSSELS, Nov 27 (Reuters) – Germany and France are exploring radical methods of securing deeper and more rapid fiscal integration among euro zone countries, aware that getting broad backing for the necessary treaty changes may not be possible, EU officials say.

Germany’s original plan was to try to secure agreement among all 27 EU countries for a limited change to the Lisbon Treaty by the end of 2012, making it possible to impose much tighter budget controls over the 17 euro zone countries — a way of shoring up the region’s defences against the debt crisis.

But in meetings with EU leaders in recent weeks, it has become clear to both German Chancellor Angela Merkel and French President Nicolas Sarkozy that it may not be possible to get all 27 countries on board, EU sources say.

Even if that were possible, it could take a year or more to finally secure the changes while market attacks on Italy, Spain and now France suggest bold measures are needed within weeks.

As a result, senior French and German civil servants have been exploring other ways of achieving the goal, either via an agreement among just the euro zone countries, or a separate agreement outside the EU treaty that could involve a core of around 8-10 euro zone countries, officials say.

No firm decisions have yet been reached.

Reuters exclusively reported on Nov. 9 that French and German officials were discussing plans for a radical overhaul of the European Union to establish a more fiscally integrated and possibly smaller euro zone.

BRUSSELS (Reuters) – Belgian political parties negotiating a coalition agreement reached a deal on the 2012 budget on Saturday, clearing the last major obstacle to the formation of a new government more than 18 months after elections were held.

The deal came hours after ratings agency Standard & Poor’s downgraded Belgium’s credit to AA from AA+, piling pressure on the country to act.

S&P said difficulties in Belgium’s banking system and the government’s inability to respond to economic pressures had contributed to the downgrade.

After downgrade late on Friday, Belgium’s caretaker prime minister, Yves Leterme, urged budget negotiators to reach a deal before markets open on Monday, fearing that the country’s borrowing costs could be pushed beyond sustainable levels.

“The formateur and the negotiators reached a major milestone in the formation of the Government,” the negotiators said in a statement, referring to the Belgian term for the person responsible for negotiating the coalition, Elio di Rupo, who is likely to be the next prime minister.

“They have developed budgets for 2012, 2013 and 2014 and reached an agreement on long-term structural reforms in employment and pensions,” the statement said.

The negotiators said that under the deal, Belgium would reduce its budget deficit to 2.8 percent of gross domestic product in 2012 from 3.6 percent expected this year and balance its books in 2015.

BRUSSELS, Nov 26 (Reuters) – Belgian political parties negotiating a coalition agreement reached a deal on the 2012 budget on Saturday, clearing the last major obstacle to the formation of a new government more than 18 months after elections were held.

The deal came hours after ratings agency Standard & Poor’s downgraded Belgium’s credit to AA from AA+, piling pressure on the country to act.

S&P said difficulties in Belgium’s banking system and the government’s inability to respond to economic pressures had contributed to the downgrade.

After downgrade late on Friday, Belgium’s caretaker prime minister, Yves Leterme, urged budget negotiators to reach a deal before markets open on Monday, fearing that the country’s borrowing costs could be pushed beyond sustainable levels.

“The formateur and the negotiators reached a major milestone in the formation of the Government,” the negotiators said in a statement, referring to the Belgian term for the person responsible for negotiating the coalition, Elio di Rupo, who is likely to be the next prime minister.

“They have developed budgets for 2012, 2013 and 2014 and reached an agreement on long-term structural reforms in employment and pensions,” the statement said.

The negotiators said that under the deal, Belgium would reduce its budget deficit to 2.8 percent of gross domestic product in 2012 from 3.6 percent expected this year and balance its books in 2015.

BRUSSELS (Reuters) – Euro zone states may ditch plans to impose losses on private bondholders should countries need to restructure their debt under a new bailout fund due to launch in mid-2013, four EU officials told Reuters on Friday.

Discussions are taking place against a backdrop of flagging market confidence in the region’s debt and as part of wider negotiations over introducing stricter fiscal rules to the EU treaty.

Euro zone powerhouse Germany is insisting on tighter budgets and private sector involvement (PSI) in bailouts as a precondition for deeper economic integration among euro zone countries.

Commercial banks and insurance companies are still expected to take a hit on their holdings of Greek sovereign bonds as part of the second bailout package being finalised for Athens.

But clauses relating to PSI in the statutes of the European Stability Mechanism (ESM) – the permanent facility scheduled to start operating from July 2013 – could be withdrawn, with the majority of euro zone states now opposed to them.

The concern is that forcing the private sector bondholders to take losses if a country restructures its debt is undermining confidence in euro zone sovereign bonds. If those stipulations are removed, most countries in the euro zone argue, market sentiment might improve.

“France, Italy, Spain and all the peripherals” are in favour of removing the clauses, one EU official told Reuters. “Against it are Germany, Finland and the Netherlands.” Austria is also opposed, another source said.