MEPs sceptic over finalisation of fiscal treaty – EP president

The president of the European Parliament, Martin Schulz, has expressed scepticism that European leaders will be agreeing on a finalised fiscal treaty that will bring closer co-ordination of budget policy for the 17 member states in the euro zone.

Schulz said any such treaty should not only be based on an austerity programme for the many European countries that are facing sovereign debt crises.

"We don't want just to cut, cut, cut. We have to show budget restraint, but also invest for growth."

Schulz said the majority of MEPs were backing the creation of eurobonds by clubbing together eurozone economies to issue bonds representing all 17 member nations.

"Eurobonds would reduce spreads and more solidarity can be generated, with less wastefulness," Schulz said.

He also said MEPs were united behind a financial transactions tax, which the United Kingdom and Malta are opposing because it would create a new burden for their financial services industries.

French President Nicolas Sarkozy has announced a 0.1% tax on financial transactions to be implemented in August regardless of whether other countries do the same.

Most member states - but not the UK - are expected to sign up to the new budget treaty, or "fiscal compact". Currently the draft treaty says signatories will hold summits at least twice a year. The attendance of non-euro countries is left to the discretion of the summit president, with the words "will invite when appropriate and at least once a year".

Leaders will try to finalise the text of the new fiscal treaty which all EU countries except Britain say they intend to sign. There are still some issues to be resolved - Poland worries about being shut out of future eurozone summits, and there's political pressure in Germany to make the budget rules and penalties in the treaty a little tougher.

Private investors are also being asked to take a 50% "haircut" (loss) on their Greek bonds so that the debt-stricken country can cut to 120% of its gross domestic product by 2020.

The eurozone's permanent €500 billion bailout fund - the European Stability Mechanism (ESM) - is expected to be approved tonight, but the UK will not contribute to it. Another fund, the €300 billion European Financial Stability Facility (EFSF) - ends in 2013.