EU launches bid to rewrite eurozone budgets

Europe starts Wednesday down a road to far-reaching legal changes that would see the EU police budgets before they pass domestic lawmakers, a pre-condition for pooled eurozone bond sales. Jose Manuel Barroso, head of the executive EU Commission, and 'euro' commissioner Olli Rehn, present shortly after noon (1100 GMT) controversial proposals pitched as key to preventing a repeat debt crisis. The interlinked measures, which now journey through the EU's 27 member states and the European Parliament, have caused disquiet in different camps with Germany -- which backs hardline fiscal surveillance -- hard-wired against common bonds. "If we have to have this debate, then it is more appropriate to have it at the end (of the crisis) and therefore I do not think it is right to have it now, in the middle of the crisis, as if it were the answer," Chancellor Angela Merkel said Tuesday. "In the long term, it is not." As well as bailed-out trio Greece, Ireland and Portugal, eurozone giants France, Italy and Spain have each seen borrowing costs rise on bond markets this year. Belgium is also in danger amid an 18-month political paralysis that has prevented parties agreeing a government or budget. As Europe's biggest economy and the state with the lowest borrowing costs, Germany worries it would be liable for the lion's share of pooled borrowings -- at least until such time as the European Central Bank declares itself a US-style "lender of last resort." Which Germany, the home of the ECB and guardian of its 'sound money' raison d'etre, rejects outright. In Berlin on Tuesday, Rehn said the introduction of so-called 'stability bonds' would only work if done hand-in-hand with radical budgetary intervention. He said that "substantially reinforced fiscal surveillance and policy coordination" would be "an essential counterpart." The EU has rules on annual deficits and cumulative debts that have been trampled over for years by its governments, despite a series of toothless changes agreed among capitals. This time, Rehn's Commission wants the power to send inspectors in to treasuries and finance ministries around Europe, and demand changes it believes better meet the needs of the common good before funds are legally allocated. The budget plans focus on eurozone states, and recommend institutionalised extra-high supervision by the Commission and the ECB for those in greatest difficulty or already in bailout programmes with the International Monetary Fund. EU president Herman Van Rompuy stressed on Tuesday that good financial housekeeping by states is the pre-requisite to any "mutualisation" of debt issued and repaid across borders. He was speaking after talks with new Italian premier Mario Monti -- whose government already faces the humiliation of such international auditors poring over its books in Rome. Leaders of the 27 EU states are expected to debate introducing the legislative package at a December 9 summit. Anything that demands states bail out partners -- beyond purely voluntary action -- would require changes to the EU's treaty, a process riven by referendum dangers for backers of greater integration. Three options for eurozone bonds envisaged by the Commission depict an evolving system it says could bring down yields for those under the most pressure, perhaps beginning only with the best-run economies and only selective guarantees.