EU Leaders to Meet On Greece, Growth

By MATINA STEVIS And RIVA FROYMOVICH

The Wall Street Journal

… Prime ministers will be confronted with new reality of fiscal surveillance…

BRUSSELS—European leaders and finance ministers will meet Thursday and Friday in Brussels to finalize the second Greek bailout package and discuss measures to promote long-term growth, but there will be no decision on boosting the euro-zone rescue fund, EU officials said.

In a meeting that is likely to have "less drama" than recent gatherings, according to European Commission President José Manuel Barroso, the leaders are likely to focus on the way forward but avoid the key question of enlarging firewalls protecting against the sovereign-debt crisis. That discussion may take place later in March.

European Union heads of government will kick off talks on a set of economic reforms and steps to boost growth and jobs, as well as on recent developments in Arab countries.

The leaders are expected to give European Council President Herman Van Rompuy a nod for a fresh term running through the end of 2014. He is also set to be elected to chair the summits of euro-zone heads of government.

"On Greece there's been real progress in the last couple of weeks," Mr. Barroso said, adding that the risk of a credit crunch has been reduced by the actions of the European Central Bank. "One of the key issues is one of confidence, of trust...that is why I want discussion of growth to be as concrete as possible."

An EU diplomat said leaders may talk about whether to increase the region's bailout mechanism but feel there is no pressure to make a decision. Instead, euro-area leaders may have to meet later next month to discuss the issue, two EU officials said.

German Chancellor Angela Merkel "wants the question of Greece to be far out of the picture before discussing firewalls," one of the officials said. Greece will complete the bond exchange on its debt restructuring on March 12.

There is currently a €500 billion ($671 billion) cap on the European Stability Mechanism, which will be launched this summer. However, many countries want that ceiling lifted or want the ESM to be combined with the European Financial Stability Facility, the temporary rescue fund.

Senior EU officials have said they want a decision on the firewall in March. Non-euro-zone Group of 20 countries also are pressuring Europe to act in exchange for giving fresh resources to the International Monetary Fund. But a German government official said Wednesday that a decision may not come in March.

At the talks Thursday and Friday, EU leaders will discuss economic reforms and commit to measures that would boost growth and jobs even while continuing to slim down budget deficits, according to a draft of the meeting's conclusions reviewed by Dow Jones Newswires.

The leaders will recommit to the Europe 2020 targets on growth and jobs, which include taking actions to "restore normal lending to the economy, promote growth and competitiveness" and tackle unemployment, the document said. The draft said "efforts undertaken to date remain insufficient to meet most of these targets."

The 27 EU leaders will also commit to review certain tax policies, including energy, financial transactions, savings and corporate.

The draft indicates that EU leaders will also discuss financial-sector regulation and will ask the European Commission to tighten rules on bank pay and bonuses.

On Thursday evening, leaders will hear a report from the European Commission on countries with outsized deficits, a first step to a new system of tighter supervision that will require governments with imbalanced economies to submit reform plans by April.

"Prime ministers will be confronted with new reality of fiscal surveillance," said one EU diplomat.

While the EU executive has expanded its powers over the past year to impose sanctions on member states that transgress fiscal rules, countries have a lot of time before they need to implement Commission recommendations. Some officials say there is still not enough real peer pressure on member states to ensure countries adjust their policies.

Euro-zone finance ministers, meeting separately ahead of the EU leaders Thursday, will also hold talks on fiscal discipline and budget implementation matters. Their main task is to check that Greece has implemented the new legislation and reforms Athens committed to in return for fresh assistance. Sign off by the ministers would pave the way for the €130 billion second bailout package to be finalized.

The ministers may also look at Spain's budget after the country said earlier this week that it missed EU budget deficit forecasts for 2011. Eurogroup president Jean-Claude Juncker said the ministers would examine if the failure had more to do with regional budgets than federal ones.

"It's a question of how Spanish government will be able to reconcile its national and regional budgets with European stipulations," Mr. Juncker said.

On Thursday, EU leaders are also expected to grant Serbia candidate status—allowing it to open accession talks with the regional bloc. They are also expected to discuss Syria and to call on Russia and China to stop blocking United Nations action against President Bashar al-Assad, diplomats said.

However, diplomats said a discussion on the EU's Schengen border-free accord is unlikely to see a breakthrough on allowing Romania and Bulgaria to join. Despite Commission recommendations that the two countries have met the conditions, their accession to Schengen has been blocked by the Netherlands among other countries.

—Laurence Norman and Frances Robinson in Brussels and William Boston in Berlin contributed to this article.