The Dutch government has proposed that highly indebted states be put into “guardianship”, with spending decisions seized from the elected government and placed under the direct control of a European commissioner.

If a state is unwilling to surrender its sovereignty in this way, then it would be forced to exit the euro.

“"Member states not willing to make themselves a ward, may choose to make use of the option to leave the eurozone,” Dutch Prime Minister Mark Rutte said in a letter to the national parliament co-signed by the finance, economy and foreign ministers.

“To continue to be part of the monetary union, states should fully respect agreements."

Under the proposals, seen by EUobserver, a special European commissioner would be appointed to oversee the budgets of euro-area countries.

If a country repeatedly overspends in breach of EU stability pact rules, this commission overseer would be able to intervene directly in the running of the country, in a similar way to how a court intervenes in the running of a bankrupt firm put into receivership, according to officials familiar with the intention of the Dutch government.

"We propose to take a great new step forward by forging effective rules to be strictly enforced by an especially appointed commissioner. This is how we must safeguard the heath and viability of the eurozone and all its members for now and in the future," Rutte later said of the proposals.

The commissioner would be given a “ladder of intervention” under which the level of control of the state would be steadily ratcheted up and applied this “ward” of the EU executive.

The first rung of the ladder would involve an outside auditor making adjustments to spending to bring down the level of the deficit.

If this level of intervention is insufficient, binding measures would be imposed, or the commissioner could order a country to cut spending or raise taxes.

The last rung of the ladder would see a country placed under “guardianship”. The auditor would then draft the budget of a country before sending it to the national parliament for approval.

Such states, described in the paper as “notorious sinners”, would also lose their voting rights in the EU and the delivery of European structural funds would be dependent on compliance with the orders of the commissioner.

The guardianship would be accompanied by intensive monitoring and verification of progress at a more detailed level under “prior review” by the commissioner.

The Hague recogises the extreme nature of the proposals, but argues that such measures are necessary if the eurozone is to survive.

“For the eurozone and the internal market in their present form to have a future as a stable currency union that underpins our prosperity, there needs to be a radical break with the persistent habit of soft touch approach to agreements.”

One Dutch official said of the paper: “It is not like it would be a takeover of sovereignty, but things do need to get much tougher for countries.”

Asked whether voters would still consider themselves in a democracy under such extreme conditions, the official said: “In that case, they need to take their own responsibility. If you want to be in the club, you have to play by the rules.”

The paper adds that for the proposal to be implemented, agreement with “especially but not exclusively” eurozone countries.