Brussels leaders seeking a say in budgets of eurozone nations

The plan was drawn up by the four European presidents: the Council’s Herman Van Rompuy, the European Commission’s Jose Manuel Barroso, Eurogroup’s Jean-Claude Juncker and the European Central Bank’s Mario Draghi.

Their proposal appears 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 expose Berlin to more potential costs and reduce incentives for weaker states to fix their finances.

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,” the report to be debated at a summit of EU leaders tomorrow and Friday said.

“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 per cent 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 recapitalise 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, repeating a sentiment often expressed by Chancellor Angela Merkel.

The document is short on detail, especially measures to address short term stresses that are threatening to shatter the single currency.

Mr Barroso said the latest EU summit would be a “defining moment for European integration”.

It comes as Cyprus joins eurozone countries in need of a bail-out and with officials already talking down expectations of final answers.

But Mr Barroso told business leaders in Brussels: “It is now clear that the world expects Europe to commit to credible and concrete solutions to become more integrated and more united.

“We are now in a defining moment for European integration. We must articulate the vision of where Europe must go and a concrete path for how to get there.”

Mr Barroso insisted the answer was more political as well as economic unity. He added: “What is at stake is not only the economic integration; it is also the overall economic confidence in the euro area, and indeed our commitment to the European project.

“This is why we need to be bold and define the way forward.

“For a genuine economic and monetary union to be established, I think that we need a banking union, a fiscal union and further steps towards a political union.”

He said he expected leaders to agree a “comprehensive package” of economic growth measures at the summit, including an increase in lending capacity of the European Investment Bank, to target job-creating infrastructure projects in member states, and a better-focused use of existing EU regional aid funds.