EU’s vision for European treasury would give power over national budgets

The European Union's latest document on furthering monetary integration is calling on member states to give the Union greater powers to create a European treasury, which would have powers over national budgets.

European Commission President Jose Manuel Barroso said it was "a defining moment for European integration".

The 10-year plan is intended to strengthen the eurozone and prevent future crises, as countries grapple with current debt problems.

The document, titled Towards a Genuine Economic and Monetary Union, was released by European Council President Herman Van Rompuy and drawn up with the presidents of the European Commission, the Eurogroup and the European Central Bank.

Eurogroup president Mr Van Rompuy said it was "not meant to be a final blueprint", but that he expected "to reach a common understanding amongst us on the way forward" at the EU summit on Thursday and Friday.

The document said greater fiscal union could lead to common debt being issued by eurozone countries.

There would also be banking union, with a single European banking regulator and a unified deposit guarantee scheme.

The proposals include limits on the amount of debt individual countries can take on; annual national budgets can be vetoed if they are likely to mean a country exceeding its debt limits; a European treasury office to control a central budget and keep an eye on national ones; and even common policies on employment regulations and levels of taxation.

One of the big changes under the new proposals is that while in the past eurozone members had to keep their budget deficits below a certain level, a European treasury would be able to force them to make changes to their budgets to keep their deficits down.

But the governor of the Bank of England, Sir Mervyn King, expressed concern about the recent response of European authorities. "I am pessimistic. I am particularly concerned because over two years now we have seen the situation in the euro area get worse and the problem being pushed down the road," he said, while appearing at a parliamentary hearing.

Addressing a banking conference in London on Tuesday, Central Bank of Malta governor Josef Bonnici stressed that the Frankfurt-based European Central Bank couldn't act as a lender of last resort for governments, and that its interventions to buy government bonds had necessarily been limited.

"This is where the adjustment has to be made, from the government side," Bonnici said. "Governments have to talk to governments."

His comments are the latest in a heated debate, between the ECB on one side and increasingly desperate governments on the other, over how far the ECB should go to damp down market speculation that countries such as Spain and Italy, ultimately, can't live with the discipline of staying in the euro.

Bonnici stressed that markets can't and shouldn't expect an immediate solution to the problems created by a decade of inadequate governance in the euro zone.

At the same time, he played up the measures for a banking union currently being discussed to restore some sort of trust to the banking sector and stop the euro zone's financial market disintegrating along national lines.