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ECB backs Commission proposal for individual EU debt reduction paths

FILE PHOTO: Signage seen outside European Central Bank building in Frankfurt, Germany

By Jan Strupczewski

STOCKHOLM (Reuters) - The European Central Bank gave its initial support on Friday for changes to EU fiscal rules proposed by the European Commission that would give each country an individual debt reduction path, strengthen accountability and provide incentives for investment.

Speaking after a meeting with euro zone finance ministers, ECB President Christine Lagarde said it was important for the new rules to be in place by the end of the year, to smoothly replace the existing ones without a period of uncertainty.

The Commission proposed on Wednesday that governments should have four years to ensure their public debt falls by an individually negotiated amount and stays on a downward path for a decade afterwards without any additional measures.

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The proposal, which sets no numerical target for how much each country's debt should fall, immediately drew criticism from the EU's biggest nation Germany, which wants a 1% of GDP minimum annual debt-reduction target for all 27 EU countries.

"We appreciate the stronger focus on high debt levels and a medium-term perspective that also aims to set incentives for much needed investment and reforms," Lagarde told reporters.

The Commission, wary of national debts around the bloc that range from more than 170% of GDP in Greece and 145% in Italy to 19% in Estonia and 22% in Bulgaria, wants to move away from one-size-fits-all rules, like the current one which calls for annual debt cuts of 1/20th of the excess above 60% of GDP.

France backed the idea of individual debt-reduction paths.

"One size does not fit all," French Finance Minister Bruno le Maire told a news conference on the sidelines of the ministerial talks in Stockholm. "We strongly support this starting point and we don't want to come back to old rules. That would be not be efficient in the new world," he said.

The lack of minimum numerical targets for debt cuts, binding for all, was criticised by German Finance Minister Christian Lindner and Austrian Finance Minister Magnus Brunner, however.

"I expect further progress in negotiations that will provide for a stricter path on cutting debt," Brunner said.

The ECB, however, sided with the Commission.

"It's clear that countries face different challenges that need to be addressed in a common EU framework for economic governance," Lagarde said.

She said that from a monetary policy perspective, it was important that the changed rules would ensure a realistic, gradual and sustained reduction of public debt and diminish differences in debt levels between the bloc's 27 members.

"This will contribute to reducing uncertainty and to anchoring market expectations regarding the medium-term debt situation of the Member States," she said.

(Additional reporting by Francois Murphy in Vienna, and Balazs Koranyi in Stockholm; Reporting by Jan Strupczewski; Editing by Hugh Lawson)