Lukewarm response to Barroso-Van-Rompuy economic plan

The Barroso-Van-Rompuy blueprint is designed to overcome resistance to an earlier Franco-German "Competitiveness Pact' by tweaking some of its proposals.

Under the Barroso-Van-Rompuy version, enforcement of competitiveness will be overseen by the European Commission rather than the member states themselves.

The Barroso-Van-Rompuy plan does contain a requirement that German-style 'debt brakes' be implemented across the eurozone, however. Resistance to this element comes from those who do not want to open the Pandora's Box of constitutional amendments this could entail.

Opposition to the Franco-German pact also revolved around the proposal that countries that maintain inflation-indexed wage systems abandon this practice. Belgium and Luxembourg in particular were resistant.

Under a compromise in the new rules, these systems can remain, but in such circumstances governments would be required to develop other ways to reduce wages. A monitoring system would also be introduced, keeping an eye on wage and productivity levels in the different states and a mechanism for their reduction should they become a threat to competitiveness.

Even after the presentation of the new compromise, the issue of wage moderation remains "tricky" according to another EU diplomat.

"The key is that the precise policy mix [on wages] remains in the realm of the member states," the source said, meaning that it would be up to the national capital how to implement the wider goal of lower wages rather than an EU-level constructed mechanism.

The proposals, according to EU sources, also include a system for monitoring the cost of state pension systems, a mechanism that could result in retirement age increases.

One diplomat said that the purpose of Monday's meeting of high-level bureaucrats, or 'sherpas' was only intended for Mr Van Rompuy and Mr Barroso "to get a first reaction to their suggestions." "The proposals will now be re-drafted ... It's already an old document," the contact added.

Brussels flexible on bail-outs

In separate developments on Monday, EU economic affairs chief Olli Rehn said following the election of a new government in Ireland there may be an option to re-negotiate the interest rate the government is to pay on the recent EU-IMF bail-out.

"I expect this issue of pricing policy will be looked at from the comprehensive strategy of the European Union. We expect that this issue will be looked at from the overall European perspective of safe-guarding financial stability in the euro area and ensuring debt-sustainability of all its members," he said.

His spokesman, Amadeu Altafaj, clarified to EUobserver that this flexibility also covers the interest rate paid by fellow bailed-out state Greece.

"The pricing of the aid is open. Any way we can reinforce Ireland's fiscal sustainability makes sense. This goes for Greece as well, taking into account equal treatment for all member states," he explained.

He said however that eurozone member states, including Germany, and not the commission, will have the final say: "There is a margin for discussions, but it is up to eurozone member states themselves on the question of interest rates, and provided the countries continue to fulfill existing conditions."

Brussels to the left: ‘You signed up to austerity too'

As key figures on the left in Europe, including within the commission itself, have begun to issue their misgivings over the path of austerity chosen by the EU as a response to the crisis, the commission warned social democrats that throughout the crisis, they have also backed this process.

Last week, Greece's EU commissioner, Maria Damanaki, publicly distanced herself from EU austerity, saying it is leading to "social degradation." Former commission president Jacques Delors, a French Socialist, has also called the commission's recent Annual Growth Survey, a first step in the EU's new system of oversight of and intervention in national budgets, as "The most reactionary document ever produced by the commission."

Mark Gray, a spokesman for commission President Jose Manuel Barroso, told EUobserver that his employer did not see Ms Damanaki's comments: "as quite so outlandish as they've been reported."

"It's her personal opinion, not that of the college. Commissioners are entitled to their views. But they unanimously signed up to this," he added. "At the same time, we don't see it that way. We don't see any contradiction between fiscal consolidation and creating growth and jobs."

"I have no idea why Delors is saying this," he went on. "The Annual Growth Survey was unanimously approved by all commissioners. It was also been unanimously endorsed by the European Council, representing governments of all political stripes around Europe."