EU holds first meeting on joint economic governance

Germany on Thursday floated a nine-point plan for the reforms, with finance minister Wolfgang Schauble saying in the preamble to his text that Berlin wants to go beyond previous ideas tabled by the European Commission on 12 May.

"In our view, the vast majority of these suggestions go along the right lines. However, we believe that some of the measures need to be taken further," he said.

The German plan envisages a new body to "rigorously" examine national stability programmes, a job previously done by the European Commission. "The examiner could be the European Central Bank, or a specially appointed group of independent research institutions," Berlin said.

It added that national parliaments should play a key role in fiscal planning, after Austria, Sweden and the UK objected to the commission's 12 May proposal that EU governments should peer-review budgets before MPs get their say.

Countries which flout EU stability rules should "in extreme cases" lose EU structural fund payments and "have their voting rights in the Council suspended for at least one year."

Mr Schauble's plan does not speak of Germany's previous ideas on creating a European Monetary Fund to save countries at risk of bankruptcy or of measures for insolvent states to exit the eurozone. It says instead that "a procedure for orderly state insolvencies will have to be an integral part of any fixed crisis-resolution framework for the euro area."

"It is a very difficult question how to define insolvency for a member state of the eurozone. So far, I haven't seen any convincing model, but we need one. That is why we put it on the agenda of the task force," Mr Schauble told reporters in Berlin on Thursday.

In a sign that France is happy for Germany to take the lead, President Nicolas Sarkozy buried the hatchet with German Chancellor Angela Merkel in the run-up to the task force debate.

"There could not be a disagreement between Germany and France on subjects of such importance," he told press after a meeting with the new British leader, David Cameron, in Paris on Thursday. "I myself proposed a suspension of voting rights [for EU fiscal miscreants]," he added, recounting a phone conversation with Ms Merkel.

His remarks came after French finance minister Christine Lagarde had earlier attacked Germany over its surprise decision to ban "naked short-selling" - a form of speculative trading.

The EU last week already agreed to set up an "ad hoc" €750 billion bail-out fund for embattled eurozone economies covering the next three years, with the Bundestag set to vote on Germany's contribution to the mechanism on Friday.

The task force measures are designed to put EU finances on a more stable footing for the long-term, amid fears that major economies such as Spain and Italy are also heading for a Greek-type catastrophe.

The financial markets will be closely following what comes out of Friday's discussion, with Mr Van Rompuy set to announce results at 5pm Brussels time.

The euro on Thursday continued to trade near a four year low against the dollar, as markets digested Ms Merkel's comment on Wednesday that the single currency is facing an "existential crisis."

CORRECTION: The article previously stated that member states had suspended voting rights against Austria in 2000 when it elected an out-and-out far-right politician, the late Jorg Haider, to government. In fact, they suspended bilateral relations only.