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

The euro zone should have its own budget, which would be separate from the long-term budget of the wider European Union, draft conclusions of an EU summit to take place next week said.

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

"In that context, mechanisms to prevent unsustainable budgetary developments, as well as mechanisms for fiscal solidarity, e.g. via an appropriate fiscal capacity, should be explored," the draft said.

"Such mechanisms would be specific to the euro area and therefore not be covered by the Multiannual Financial Framework," the draft said.

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

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

The idea of a separate euro zone budget is supported by Germany, but many non-euro zone countries, which now benefit from the funds of the EU-wide budget, are concerned that its creation would diminish the amount of money available to them.

The conclusions also showed that EU leaders would support the idea of euro zone countries entering into contractual agreements with EU institutions to implement reforms.

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

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

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