updated 12/1/2009 1:41:23 PM ET 2009-12-01T18:41:23

The 16 nations that use the euro are expected to agree to deadlines on Tuesday for most of them to reduce budget deficits that are well above the EU budget rules that underpin their currency.

It is the first major step most of the eurozone countries will make toward paying off the massive debt built up by spending billions of euros rescuing banks and paying welfare to the growing number of the unemployed during the economic downturn.

The move would also come just days after Dubai's announcement that it is having trouble handling its debt shook financial markets and raised concerns about other heavily-indebted economies, such as Greece.

Finnish Finance Minister Jyrki Katainen said "so far I haven't seen any serious risk coming from Dubai." Swedish Finance Minister Anders Borg said "the exposure of European banks appears to be at a reasonable level."

The EU's executive commission is predicting that the economy will start to recover slowly next year, allowing countries to start withdrawing government stimulus programs by 2011.

Eleven eurozone nations will promise to reduce their yearly budget gaps to under 3 percent of gross domestic product by different dates: Germany, France, Italy, the Netherlands, Spain, Austria, Belgium, Slovenia, Slovakia, Portugal and Ireland.

However, Greece faces formal criticism from other countries for failing to cut back a ballooning budget deficit that at 12.5 percent of gross domestic product this year is far above the 3 percent limit. EU officials want to see action to curb the swelling debt, saying Greece's problem is also an issue for other eurozone nations.

Two nations outside the euro area, Britain and the Czech Republic, will also be asked to accept deficit reduction deadlines at talks Wednesday between all 27 EU countries.

EU aims for financial oversight deal
EU finance ministers will also Wednesday seek to agree to set up new financial oversight agencies despite British worries that the new authorities could overrule national supervisors.

Sweden's Anders Borg, who will lead the talks because his country currently holds the EU presidency, said a deal was "extraordinarily important, not least to show that the EU has learned the right lessons from the financial crisis."

He said the globalization of financial flows shows that "supervision cannot remain national" and said he hoped that countries with "some reservations" would show flexibility to help reach an agreement.

The Netherlands' Bos was more skeptical about the changes of a deal, saying EU nations have not yet resolved whether the new agencies could overrule national supervisors when they fail to agree how to tackle problems with financial companies operating in different countries.

Ministers are being asked to approve new EU banking, insurance and financial market authorities and a European Systemic Risk Board to watch out for major potential threats to the economy.

It is still unclear how far these new agencies will be able to intervene when crossborder financial groups run into trouble. EU nations have already agreed that no government should be ordered to bail out troubled banks.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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