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EU report recommends euro zone budget, pooling borrowing

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BRUSSELS, Oct 12 (Reuters) - The euro zone should considerpooling some limited short-term borrowing as well as a separatebudget that could be used to deal with economic problems inindividual countries, according to a report prepared for EUleaders who will meet next week.

In the interim report obtained by Reuters on Friday,officials wrote: "In the longer term, there is a need to explore... developing gradually a fiscal capacity for EMU (economic andmonetary union)."

"One of the functions of such a new fiscal capacity would beto facilitate adjustments to country-specific shocks byproviding for some degree of absorption at the central level,"said the report, which was prepared by European CouncilPresident Herman Van Rompuy.

The report, which will be finalised in December, alsoadvocated the examination of "the pooling of some short termsovereign funding instruments, for example, treasury bills, on alimited and conditional basis."

The report was prepared in conjunction with the president ofthe European Commission, Jose Manuel Barroso, the president ofthe European Central Bank, Mario Draghi, and Jean-ClaudeJuncker, the president of the Eurogroup of finance ministers.

(Reporting By Luke Baker; writing by John O'Donnell)

((john.odonnell@thomsonreuters.com)(+32 2 287 68 17 or +32 47569 15 89)(Reuters Messaging:john.odonnell.thomsonreuters.com@reuters.net))

Keywords: EU EMU/REPORT