Van Rompuy lays out euro future

(BRUSSELS) - The eurozone's future needs greater economic and policy centralisation to avoid any repeat of the early failings that nearly sank the whole project, European President Herman Van Rompuy said on Thursday.

In a revamped paper entitled "Towards a Genuine Economic and Monetary Union," prepared for next week's EU leaders summit, Van Rompuy laid down a clear timetable for adopting measures to put the euro on a much sounder base.

Some are highly technical -- for example, how to supervise all Europe's banks -- and some highly political, especially where they touch on the role of national parliaments in controlling their budgets.

This latter is a key issue for those states such as Britain who resent what they see as the steady erosion of national authority by Brussels which has claimed increased powers in order to solve the debilitating debt crisis.

"Decisions on national budgets are at the heart of member states' parliamentary democracies," Van Rompuy said.

"At the same time, the provisions for democratic legitimacy and accountability should ensure that the common interest of the union is duly taken into account; yet national parliaments are not in the best position to take it into account fully.

"This implies that further integration of policy making and a greater pooling of competences at the European level should first and foremost be accompanied with a commensurate involvement of the European Parliament."

On the technical issues, Van Rompuy said the first step should be to put in place the already-agreed Single Supervisory Mechanism for the banking sector by January 2014.

The SSM is meant to prevent banks in the future getting over-extended and calling for help from their governments who, as in the 2011 case of Ireland, risk collapse in turn if the bailout bill is too large.

Van Rompuy equally hoped that the European Stability Mechanism (ESM), the eurozone's new defence fund, should be able to directly recapitalise struggling banks by March 2013.

That sounds ambitious, however, given the stark divide between France and Germany over the SSM and related banking union proposals which scuppered agreement on implementation at an EU finance ministers meeting on Tuesday.

Through to 2014, Van Rompuy said a bank winding up regime should follow while member states might enter into contracts with the EU to meet specific economic and fiscal targets, getting direct help in return for the commitment.

After 2014, the focus is on coordinating budgets, ultimately to bring them all into line and at the service of wider EU policy objectives.

The EU could even have the power to borrow on the markets through a Treasury function but this would not involve the pooling of member state debt, a mutualisation process strongly opposed by Germany.

Van Rompuy's paper updated an earlier version and was written in collaboration with European Commission head Jose Manuel Barroso, Jean-Claude Juncker, head of the eurozone finance ministers group and European Central Bank chief Mario Draghi.

Barroso last month submitted his own EMU blueprint, with the euro's future safeguarded when "all major economic and fiscal policy choices by member states would be subject to deeper coordination, endorsement and surveillance at the European level."