European leaders will meet later this week for a two-day summit to try to resolve a crisis that has spread across the Europe since early 2010.
While most remedial action has failed to provide any market reprieve, a draft report seen by the Financial Times suggests that European leaders are considering a plan that would give a central financial authority the power to rewrite eurozone budgets.
The Times said:
In particular, the European Commission, the Union’s executive arm, would provide a list of budget recommendations for countries in violation of its fiscal commitments before the changes are put to a vote of all other EU countries.
Although the EU would not have the authority to dictate budget changes, the Times added that the EU would soon have “strong new tools to punish countries that do not adopt such proposals, including levying big fines.”
The EU Summit which opens in Brussels this Thursday will be the 20th time EU leaders have met to resolve the debt crisis, but there are fresh and legitimate fears that the crisis could face another major setback.
Yesterday, Cyprus became the fifth eurozone economy to seek an emergency bailout from Europe, citing heavy exposure to bad debts in Greece.
While Cyprus is the eurozone’s third smallest economy, officials say the country may require up to 10 billion euros ($12.5 billion) of bailout money, equivalent to half the size of its gross domestic product.
According to a Reuters report, Cyprus is thought to have applied to EU aid after failing to secure funds from either China or Russia.
Adding to the island’s woes, credit ratings agency Fitch downgraded Cyprus to junk as its benchmark interest rates on a 10-year bond soared to 16 percent yesterday.