BRUSSELS - After months of agonizing, leaders of the European Union are closing in on new oversight rules to ensure sound finances, prevent another government debt crisis and restore the credibility of the euro.
But leaders remain divided on key issues. And some analysts argue that even the latest proposals can't fix the bloc's fundamental problems.
EU finance ministers will try to sort out two different proposals for stricter rules to back up the euro when they meet Monday and Tuesday in Luxembourg, in hopes of a decision at a summit by heads of state and government Oct 28-29.
The proposals spell out sanctions for countries who run up deficits and debts that are too big - overspending that could undermine the shared euro currency, as Greece did when it almost went bankrupt in May and had to be bailed out by eurozone governments and the International Monetary Fund.
A key thorny question will be whether the European Commission, the EU's executive arm, will get greater powers to monitor troubling developments in individual countries' economies - such as trade imbalances or real estate bubbles - and to fine countries that don't follow its recommendations.
In its proposals announced last month, the commission gave itself exactly those powers.
Many economists argue that private debt levels and inflated wages, rather than government debt and deficits, were the main culprits behind the crises in some countries with troubled government finances such as Ireland and Spain. At the end of 2007, for instance, Ireland's debts stood at only about 25 percent of gross domestic product - well below the EU's 60 percent ceiling - but labor costs and house prices had jumped in the past decade.
When the crisis hit and economies shrank, banks were left with mortgages and debts that couldn't be repaid by people who had lost their jobs or part of their salary. That kicked off a spiral of falling house prices and failing banks, which governments were forced to bail out, in turn piling up huge deficits.
But governments are starting to push back against the European Commission's efforts to have more say about their economies. The tougher oversight of imbalances proposed by the Commission may not make it into a competing set of rules being drawn up by a group led by Herman Van Rompuy, head of the European Council of heads of state and governments.
"This is unlikely to survive in the Van Rompuy task force," says Benedicta Marzinotto, a research fellow at Brussels-based economic think tank Bruegel.
Van Rompuy launched his own task force on economic governance in May, when the Greek crisis was at its worst.
This task force, grouping EU finance ministers as well as Economic and Monetary Affairs Commissioner Olli Rehn and European Central Bank Governor Jean-Claude Trichet, will meet one last time on Monday, before submitting its plans to the council at the end of the month.
Since it already includes members of governments - who keep a keen and jealous eye on their sovereign powers - analysts expect the task force's proposals to be softer than those of the commission, where decision makers are appointed rather than elected.
The final rules adopted by the council and then by the European Parliament are likely to be watered down even further.
"Politicians will not accept rules done by institutions or individuals that don't have political legitimacy," says Paul De Grauwe, professor of international economics at the University of Leuven in Belgium.
The Commission also suggests that governments submit an outline of their annual spending early in the year. That way the EU can check whether they violate either the euro-zone rules or the bloc's economic objectives. EU rules limit debt to 60 percent of GDP and deficits to 3 percent, but those rules turned out to lack teeth and several countries - including France and Germany - have broken them without being penalized.
The question now is how to give those rules more teeth. The commission suggests that those who don't listen to commission warnings could be fined up to 0.2 percent of GDP, with fines taking effect automatically unless governments vote against them.
France and several other countries, however, opposes automatic sanctions, saying they are a political matter for governments.
There are other disputes. Germany objects to including its trade surplus in the commission's list of economic imbalances that need to be addressed. Labor costs in Germany, in contrast to problem countries like Spain, Ireland or Greece, have fallen over the past decade when taking account of production, making exports more competitive.
Domestic demand, meanwhile, has stagnated leading to complaints that Germany should do more to get its citizens to consume products from its EU trade partners.
Yet another question is whether punishing governments for macroeconomic imbalances even makes sense. "The government doesn't always have control over the cause of the imbalances," says Marzinotto.
Labor costs, for instance, are often negotiated between unions and private companies, a process that governments will have trouble influencing.
However, governments and companies may then decide to take action to prevent another crisis. Flagging potential bubbles early on - before they end in a catastrophic bust - may be useful, "even if there's no real enforcement," says Marzinotto.