EU's new budget controls already tested by high deficits

(BRUSSELS) - EU leaders signed a new treaty to control budgets on Friday, vowing to turn the corner on the eurozone debt crisis, but new public deficit strains soured the event.

Leaders from 25 of the bloc's 27 nations -- apart from the Czech Republic and Britain -- signed the treaty at a ceremony in Brussels on the second day of a summit aiming to shift the focus from crisis management to jobs and growth.

The treaty is "a strong signal that we are drawing lessons from the crisis and that we are focusing on the future of a politically united Europe," said German Chancellor Angela Merkel, the main architect of the pact.

The countries signed up to a promise to anchor in their constitutions -- if possible -- rules to stop their public deficits and debt spiralling out of control in the way that led to the eurozone crisis.

The new treaty is "an important step in reinforcing the confidence in our economic and monetary union" and a "major step towards responsibility", said EU president Herman Van Rompuy as he invited leaders to sign the document.

But amid the relief at progress made to overcome the crisis, new fiscal problems in Spain and the Netherlands -- one of the most outspoken critics of Greece's fiscal recklessness -- showed that dangers still lurk.

The Netherlands announced that its "provisional" public 2012 deficit would rise to 4.5 percent of gross domestic product from 4.1 percent forecast before, sparking a pointed rebuke from the European Commission.

"We think that the Netherlands is one country that has been very vocal when supporting the reinforcement of our fiscal surveillance rules," said European Commission economy spokesman Amadeu Altafaj.

And Spain, at the centre of the debt crisis with soaring borrowing costs that have since receded, had to explain why the country's 2011 public deficit estimate grew to 8.5 percent of GDP from a previous forecast of 6.0 percent.

"Spain will fulfill its commitments regarding budget cuts, taking into account the fact that circumstances have changed," Finance Minister Luis de Guindos told reporters.

But, he added, "given the changed circumstances, it is foreseen that a process of negotiations will begin now. And here Spain is absolutely loyal and transparent regarding (fiscal) consolidation."

Analysts have warned that renewed tensions over budgets could lead to a reawakening of uncertainty on the financial markets.

"We think there will be a certain, controllable, uncertainty on the markets over the theme of public deficits," said Gilles Moec, an economist at Deutsche Bank.

But despite the new concerns, a more relaxed set of leaders stressed the fact that for the first time for more than a year, the gathering was not billed as a crisis summit, as financial markets remain calm for now.

Helle Thorning-Schmidt, prime minister of Denmark, the current head of the EU, said: "for the first time in many, many months, this is not a crisis summit."

"We have tried to deal with the past and are now looking into the future and ... discussing how we create more growth and new jobs for Europe," she told reporters on her way into the meeting.

"It's the first normal summit for a couple of years," said Finnish Prime Minister Jyrki Katainen.

In another "normal" development at a summit, Britain found itself at loggerheads with some of its larger partners, when a strategy for growth pushed by London received only limited welcome.

Several of the measures proposed by Britain and 11 others, such as a new focus on trade with the United States, Russia and China, were not incorporated into earlier drafts of leaders' statement, apparently leaving Prime Minister David Cameron furious.

An EU source said there had been "a bit of an issue" and that Cameron and other signatories were "upset".