Eurozone: Brussels launches own plan for growth as leaders argue

The European Commission yesterday launched its plan to kickstart growth, as government leaders still failed to agree how to tackle the eurozone crisis.

With markets reacting badly to continued uncertainty in Greece and reports that Spanish banks may be insolvent, EU commissioners attempted to take the initiative and put forward their own plan for growth alongside austerity measures.

The report also warned that the EU’s current stability package was not good enough and insisted there needed to be further integration to save the euro. Producing plans for each country, the commission said the UK was being destabilised by high house prices and mortgage debt. The report said: “The high levels of household debt accumulated are linked closely to high house prices and represent an important imbalance.”

It said household debt had been rising steadily for ten years, and highly indebted households were “vulnerable to rises in interest rates or in unemployment, with potentially destabilising effects on the economy at large”.

The report warns: “While there are few indications that housing demand or interest rates would surge, the insufficient housing in the UK exposes it to volatile house prices.”For the troubled euro zone the Commission said that its 17 countries must boost growth and cut debt to regain investor confidence.

However, in a suggestion which is likely to anger German Chancellor Angela Merkel, it also said the the euro zone should move towards a banking union, consider eurobonds and the direct recapitalisation of banks from its permanent bailout fund.

The commission, the European Union’s executive, said the vicious circle of weak banks and indebted sovereigns lending to each other needed be broken.

“A closer integration among the euro area countries in supervisory structures and practices, in cross-border crisis management and burden sharing, towards a “banking union”, would be an important complement to the current structure” of Europe’s economic and monetary union, the commission said.

“In the same vein, to sever the link between banks and the sovereigns, direct recapitalisation by the ESM might be envisaged,” the document said.

Meanwhile the Scottish Government said new “Eurobonds” should be issued to allow Greece to borrow at the same rate as Germany, as it warned that the medicine imposed on debt-stricken nations on the continent was in danger of killing the patient.

Finance secretary John Swinney also said that the full might of the European Central Bank should guarantee “unlimited support” to the continent’s weakened banks, to ease fears they could crash in the wake of a Greek exit.