A new EU fiscal treaty is set to include an escape clause that allows the suspension of a balanced-budget rule during a period of economic downturn or other exceptional event, according to a draft of the document obtained by Reuters on Wednesday.
Referring to the balanced-budget rule, the document said: Temporary deviation from the medium-term objective will only be allowed in cases of (an) unusual event outside the control of the contracting party with a major impact on the financial position of the general government or in periods of severe economic downturn for the euro area, the EU or the concerned contracting party.
The balanced-budget rule, which demands governments balance their budgets over the economic cycle, is central to the new treaty, which is designed to tighten fiscal control in the euro zone. The treaty -- still being negotiated -- excludes Britain.
(Reporting By John O'Donnell and Julien Toyer; editing by Robin Emmott)