EU summit to back idea of separate euro zone budget-draft conclusions

BRUSSELS, Oct 9 (Reuters) - The euro zone should have itsown budget, which would be separate from the long-term budget ofthe wider European Union, draft conclusions of an EU summit totake place next week said.

"For the euro area, the objective is to move towards anintegrated budgetary framework," said the draft conclusions,obtained by Reuters.

"In that context, mechanisms to prevent unsustainablebudgetary developments, as well as mechanisms for fiscalsolidarity, e.g. via an appropriate fiscal capacity, should beexplored," the draft said.

"Such mechanisms would be specific to the euro area andtherefore not be covered by the Multiannual FinancialFramework," the draft said.

The Multiannual Financial Framework is the European Union'slong-term budget which amounts to around 1 percent of the grossdomestic product of the 27-nation bloc.

It is used to support the EU's agriculture policy as well asinvestment in the EU's poorer countries and regions, amongothers.

The idea of a separate euro zone budget is supported byGermany, but many non-euro zone countries, which now benefitfrom the funds of the EU-wide budget, are concerned that itscreation would diminish the amount of money available to them.

The conclusions also showed that EU leaders would supportthe idea of euro zone countries entering into contractualagreements with EU institutions to implement reforms.

"The smooth functioning of EMU (the euro zone) for strongerand sustainable economic growth, employment and social cohesionrequires stronger coordination, convergence and enforcement ofeconomic policy," the draft conclusions said.

"In this respect, the idea for the euro area Member Statesto enter into individual arrangements of a contractual nature atthe European level on the reforms they commit to undertake andon their implementation should be explored," they said.

(Reporting By Luke Baker, writing by Jan Strupczewski; editingby Ron Askew)

((jan.strupczewski@thomsonreuters.com)(+32 2 287 68 37)(ReutersMessaging: jan.strupczewski.reuters.com@reuters.net))