BRUSSELS - European Union members, except the United Kingdom, will sign a
long-awaited fiscal compact on Friday at its summit, aiming to supervise
government deficits and public debt.

The compact accompanies the preparation of the European Stability Mechanism,
the EU's rescue fund with 500 billion euros ($666 billion) of firepower which
will be set up in July to gain investors' confidence and fight market
speculation.

European Council President Herman Van Rompuy said leaders will sign the new
Treaty on Stability, Coordination and Governance in the Economic and Monetary
Union, also known as the "fiscal compact", on Friday.

Thousands of protesters in Spain, Greece and Belgium took to the streets on
Wednesday and Thursday to oppose austere fiscal policies, which have brought
cuts in pensions, job opportunities and social welfare benefits.

The fiscal compact will ensure that the government deficits do not exceed 3
percent of GDP and that their general government debt does not exceed, or is
sufficiently declining toward, 60 percent of GDP.

It has also stipulated binding rules to ensure members refrain from any
measure which could jeopardize the attainment of the EU's objectives,
particularly the practice of accumulating debt outside general government
accounts.

Currently, European leaders believe that the average debt level in Europe is
better than in the United States and Japan, although the ratio of debt and GDP
of Greece, Spain, Italy, Portugal, Belgium and France is higher than 100
percent.

The two-day summit started late on Thursday with the discussion on economic
issues. Van Rompuy urged the leaders to shift their attention from combating the
crisis to creating growth and jobs.

The call came after the recent agreement on the second bailout fund of 130
billion euros for Greece, which has been given strict conditions for allocating
the money.

Meanwhile, the European Central Bank took another surprise step on Wednesday
by providing a further 529.5 billion euros in low-interest loans to 800 banks
across the EU after it offered 489 billion euros in three-year loans in December
to more than 500 banks.

In spite of these steps, the widespread loss of economic confidence among
banks and businesses has made some banks become cautious in releasing the loans
though interest rates are very low.

An earlier report said the EU economy was projected to stagnate in 2012,
while the eurozone is set to enter a mild recession. Modest growth is predicted
to return in the second half of the year and nine out of 27 members will see
economic contraction this year.

"Together, we are acting decisively to restore stability, strengthen public
finances and to show solidarity with those member states that are currently
facing serious difficulty," Jose Manuel Barroso, president of the European
Commission, said ahead of the summit.

"This is absolutely essential - but it is not enough. We need to do more to
create the conditions for our longer term prosperity, to trigger a virtuous
circle of reform, stability and sustainable growth."

Barroso said European leaders have agreed on the importance of making the
right decisions for future growth and competitiveness. "The true test we now
face is whether we can translate these good intentions into results on the
ground."

At last summit in January, Barroso called for priority to be given to
reducing youth unemployment and increasing support for small businesses.

On Thursday, he was expected to focus on funding for transport, energy and
telecommunication infrastructure projects and the urgency of bringing down the
cost of broadband roll out. "These issues are very important to boost the growth
potential for Europe," said Barroso.

On Friday, the leaders will also discuss the preparations for the G8 and G20
summits to take place on May 19-20 and June 18-19 respectively. It will also
prepare the UN "Rio +20" conference to be held on Jun 20-22.