Brussels: Top officials of the cash-strapped European Union have called out to Eurozone countries to provide authority to an international authority which shall have the power to make changes to their national budgets, as a part of a sovereign economic scheme to save the currency and empower the union.
The ambitious plan was laid out on the European Council website and was formulated by the “gang of four” European presidents: Council President Herman Van Rompuy, European Commission President Jose Manuel Barroso, Eurogroup President Jean-Claude Juncker and European Central Bank President Mario Draghi.
The four officials' proposal appears to be aimed at encouraging Germany to accept closer fiscal integration, such as jointly issued eurobonds, which spread debt risk across the eurozone and would lower the risk of individual states needing a bailout.
Germany opposes a quick adoption of eurobonds because it would be exposed Berlin to more potential costs and reduce incentives for weaker states to fix their finances.
A central control over those finance policies may reduce Germany's fears.
"Greater pooling of decision-making on budgets...(and) effective mechanisms to prevent and correct unsustainable fiscal policies in each member state are essential,'' they wrote in the report to be debated at a summit of EU leaders Thursday and Friday.
"Toward this end, upper limits on the annual budget balance and on government debt levels of individual member states could be agreed in common.''If a country were to flout budget rules" the euro area level would be in a position to require changes.''
It is not clear how much appetite eurozone governments have for surrendering further control over their budgets to Brussels, although all agreed to abide by a 3 percent deficit limit when they joined the single currency.
The plan proposes a "medium term'' move towards eurobonds, as well as creating a banking union with a single authority that would insure banking deposits and have the power to shut or recapitalize banks directly, with help from Europe's permanent bailout fund.
Germany's deputy foreign minister quickly dismissed the eurobond idea. "By beginning with pooling of debt, we're heading toward a dead end,'' Michael Link said in Luxembourg, repeating a sentiment often expressed by Chancellor Angela Merkel.
The document is long on vision but short on detail, especially measures to address short term stresses that are threatening to shatter the single currency.
On Monday, Spain requested financial help to recapitalize its banking industry, and yields on Spanish and Italian government bonds are rising toward levels that forced the governments of Greece, Portugal and Ireland to seek bailouts. But Spain and Italy are widely considered "too big to bail'', even for Europe's biggest and strongest nation, Germany.
"Standing still is not an option,'' Barroso told reporters Tuesday, discussing the plan. "A big leap forward is now necessary.''
At the end of the report, Van Rompuy volunteered to develop a "specific and time-bound roadmap for the achievement of the genuine economic and monetary union'' by December.
With Agency Inputs