IMF welcomes EU proposals to revamp spending rules

The EU's executive arm unveiled the plans on Wednesday but they have sparked a rift between member states over how to encourage investment in key areas such as defence while keeping strong watch over government spending.

The "frugal" northern countries including Germany want the rules to remain strict, while southern states like Italy said they constrain their ability for public investment.

"(It) is a good proposal", IMF's European department director Alfred Kammer told reporters in Stockholm, but he said there was a need for "further action".

He called for an independent European fiscal council "that could look at methodology and can intervene on methodology, for instance, outside of the commission".

The EU's current spending rules say states' public deficits should not go above three percent of gross domestic product, and debt should stay below 60 percent of GDP.

Those targets will stay, but there will be more flexibility through individual plans for debt reduction that are country-specific.

The EU aims to conclude an agreement by the end of this year and EU officials were optimistic that this could be reached despite the divisions.

European Commission Vice President Valdis Dombrovskis said the 27 member states had a set a "very ambitious" timeline.

"At this stage it is difficult to predict how long the legislative process will take," he said ahead of a meeting of finance ministers in Stockholm.

The reform will be one of the critical subjects dominating the ministers' agenda alongside the EU economy, and inflation, which remains high in the eurozone.

The EU's economy commissioner, Paolo Gentiloni, told journalists he was "optimistic" the bloc would achieve "good results".

"All member states despite different points of view are aware of the need to reach an agreement," he said, adding the commission's proposal was "very balanced".