European leaders aim to punish states that don’t adhere to a timetable to reduce debt while giving countries less room to deviate in economic policy, a revised draft of the region’s budget-stability treaty shows. Countries with government debt above 60 percent of gross domestic product will be subjected to automatic sanctions if they fail to cut debt by 5 percent per year, according to the blueprint distributed to lawmakers in Berlin. That provision was added to a stipulation that sanctions will be enforced automatically if deficits exceed 3 percent of GDP. The draft’s authors, in updating the aims of the fiscal pact and renaming it a treaty, seek to plug gaps in EU policy that “if allowed to persist might threaten stability, competitiveness and future growth and job creation,� according to a copy obtained by Bloomberg News. They also say that there is the need for “deeper integration in the internal market.� The proposals may be discussed by German Chancellor Angela Merkel and French President Nicolas Sarkozy, who are meeting in Berlin today to agree on joint efforts to tame the debt crisis now in its third year. Euro-region states might sign the treaty as early as Jan. 30, two months before the end-of-March deadline agreed on at an EU summit last month, Handelsblatt newspaper reported today, without saying where it got the information. In another change, the draft said that economic growth- adjusted deficits mustn’t exceed 1 percent of GDP in countries with a debt of less than 60 percent of GDP. The plan is to be adopted by single-currency members and folded into European Union-wide rules within five years, the draft shows. Parties to the treaty would also agree to discuss “ex-ante� any major policy changes they plan to undertake. The U.K. is the only one of the EU’s 27 members to have refused to join the effort. The latest draft may reflect German concerns that Merkel’s original proposals don’t go far enough to tighten the euro’s rules. Merkel’s Christian Social Union Bavarian allies, one of three parties in the ruling coalition, called last week for no- exception sanctions against budget infringements and the possibility of throwing out states from the currency union. To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net; Rainer Buergin in Berlin at rbuergin1@bloomberg.net To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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