The European Union executive said in June that certain elements of the Stability and Growth Pact, which underpins the euro, had proved too strict and should be reconsidered to increase its effectiveness and credibility.
The admission came after a long-running budget battle with Germany and France, the euro zone's two biggest economies, over deficits that are seen breaking the Pact's cap of three percent of gross domestic product for the third year running in 2004.
The Commission got the ball rolling before its summer recess by sketching out ideas for changing the Pact that it was prepared to consider and will go into more detail when it reconvenes on Friday.
EU sources said no final decision was expected this week as months of consensus building with EU capitals lay ahead, starting with discussions with EU finance ministers at an informal meeting in the Netherlands on September 10-11.
"The ideas laid out in June will be elaborated without reaching any concrete conclusions," said one EU source.
European Monetary Affairs Commissioner Joaquin Almunia said earlier this month he will also lead discussions on how to react to a recent court ruling on the Stability Pact
On July 13, the EU's highest court annulled a decision by the bloc's finance minister to suspend disciplinary action against Germany and France for excessive budget deficits.
The Commission said before summer it would consider loosening the pact's get-out clause by redefining the circumstances which warrant leniency for budget offenders.
EU advisers last year suggested the conditions should be changed so that a country can break the EU deficit cap if its economy contracts at all for a year, rather than only if it shrinks by at least two percent as under the current rules.
The EU executive is expected to go down this road in a bid to introduce more flexibility into the Pact.
It will also seek to change the rules so that policy recommendations are tailored to EU states' particular situation.
EU sources said that this could mean allowing countries with low debt ratios or high potential growth rates to run small deficits instead of forcing them to meet the Pact's current medium-term balanced budget goal.
By contrast, countries with high debt levels or large future pensions liabilities could be set a more ambitious medium-term budget target, such as a surplus.
"It is harder to change the pact's three percent ceiling than to adjust the idea of how close to balance the country should be," said one EU source.
He said going down this road would necessitate a discussion on what types of government spending should be allowed to cause a deviation from the balanced budget goal.
The Commission will on Friday also look more broadly at ways of improving the co-ordination of growth and budget policies, for example, by concentrating such co-ordination in the first half of the calendar year.
EU agreements on the broad outlines of economic policy would then act as the framework for national parliamentary debates on budgets, which normally take place in autumn.
"EU governance is about several things. It is about co-ordination, not just of budgetary policy, but also of the broad economic policy guidelines, and the calendar of such co-ordination," said one EU source.
The Commission has previously said it also wants to improve surveillance of one-off budget measures, and would prefer a state's budget adjustments to be measured on the basis of growth forecasts made by a third party rather than the country itself.