European proposals to reshape the crisis-struck euro area raninto immediate criticism from Germany for putting too much emphasison debt sharing and too little on controlling national budgets.

The 10-year roadmap, released today by four officials led byEuropean Union President Herman Van Rompuy, centered on commonbanking supervision and deposit insurance and a “criteria-based andphased” move toward joint debt issuance. It also suggests that theEU could impose upper limits on annual budgets and debt levels ofnations that use the euro.

“Parts of it read like a wish list,” German Deputy ForeignMinister Michael Link told reporters in Luxembourg. The proposalslean “toward various models for mutualizing debt. What comes upshort is improved controls,” he said.

Germany's instant opposition lessened the chances that a June28-29 summit — the 19th since the debt crisis broke out in early2010 — will point the way out of the turmoil that threatens tosplinter the euro currency.

Van Rompuy collaborated on the proposals with European CentralBank President Mario Draghi, European Commission President JoseBarroso and Luxembourg Prime Minister Jean-Claude Juncker, whomanages meetings of euro finance ministers.

Banking supervision in the euro area could be entrusted to theECB, under a provision in the EU's treaty that allows membernations to give the central bank more oversight of all financialinstitutions except insurance companies. The report envisions anEU-wide deposit-insurance program, to “strengthen credibility” ofexisting national backstops, as well as financial sector-fundedscheme for winding down banks.

Broad deposit guarantees would require a “solid financialbackstop,” the report said. Within the euro area, the500-billion-euro ($625 billion) European Stability Mechanism couldstand behind deposit insurance guarantees and the resolution fundfor shutting failing banks.

Bundesbank President Jens Weidmann said the discussion aboutintroducing a banking union in the euro area can't take placewithout it being part of the debate on fiscal union. He said thecurrency bloc's politicians need more serious discussion of sharingsovereignty.

“It makes little sense to single out the banking sector whentalking about mutualization of debt, without taking the rest intoaccount,” Weidmann, who also sits on the ECB's Governing Council,said in Hamburg yesterday. “It's important that a banking uniondoesn't lead to euro bonds by the back door.”

Joint Borrowing

Van Rompuy's report stopped short of proposing a bindingcalendar for a switch to joint borrowing, saying that anydebt-sharing system would have to go along with tighter managementof national budgets.

“Steps toward the introduction of joint and several sovereignliabilities could be considered as long as a robust framework forbudgetary discipline and competitiveness is in place to avoid moralhazard and foster responsibility and compliance,” according to thedocument.

Shared bills and common pay-down efforts are among the optionsfor moving toward joint borrowing, the report said. Options include“the pooling of some short-term funding instruments on a limitedand conditional basis, or the gradual roll-over into a redemptionfund,” the report said.

More centralized decision making would require nations to seekapproval before issuing government debt beyond agreed-upon limits.Countries that violate fiscal rules could be required to makechanges, the report said.

Van Rompuy said this week's summit needs to give the go- aheadto forge detailed proposals by December. An interim report could bepresented in October as the EU works on a “specific and time-boundroad map” toward a “genuine” economic and monetary union

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