Factbox: How the EU keeps an eye on national economic policies

BRUSSELS (Reuters) - European Union leaders meet this week to set economic and social policy priorities for the 27-nation bloc, with many countries still struggling with recession and record unemployment, and investor confidence in the euro fragile.

The summit is an important part of a system of policy coordination that EU countries - especially the 17 sharing the euro - developed to prevent another sovereign debt crisis.

The system, known as the European Semester, aims to shape policies in line with EU goals at an early stage. The European Union has a separate way of dealing with countries that have already broken deficit rules, called the excessive deficit procedure.

Below are the main points of the economic and social policy coordination and monitoring cycle, which is already under way for 2013.

DECEMBER/JANUARY

The executive European Commission publishes its Annual Growth Survey, setting out economic and social policy priorities for the European Union. For 2013 these priorities are:

- Pursuing differentiated, growth-friendly fiscal consolidation

- Restoring normal lending to the economy

- Promoting growth and competitiveness

- Tackling unemployment and social consequences of the crisis

- Modernizing public administration

JANUARY/FEBRUARY

EU finance ministers discuss the survey as well as Commission reports on macroeconomic imbalances in various EU economies.

MARCH

EU leaders set policy priorities for the full European Union and the euro zone as a whole, on the basis of the Commission's proposals and ministerial discussions. This paves the way for individual countries to prepare their own reform plans (called Stability and Convergence Programmes and National Reform Programmes) that are in line with the overall guidelines.

APRIL

EU countries send to the Commission their national reform plans, which must comply with the guidelines and with EU budget rules. The Commission analyses these national programs.

MAY

On the basis of the national plans, the European Commission prepares country-specific recommendations on what policy action would be best for each EU member.

JUNE

EU leaders discuss and endorse the policy recommendations to be implemented by each country.

OCTOBER

Euro zone countries must send draft budgets to the European Commission by October 15 for vetting, to assess if the budget balance and other elements are in line with EU rules and with the country specific recommendations EU leaders endorsed in June. If a draft clashes with what the EU agreed, the Commission can send it back asking for changes.

(Reporting By Jan Strupczewski; editing by Rex Merrifield)