Politicians hope the proposals, which would be funded by a new tax on banks, will stem the rapid escalation in the debt crisis witnessed in recent weeks.
The plan is being formulated alongside Italian Prime Minister Mario Monti's desire for a guarantee on bank deposits.
The annual levy would be placed into a "deposit guarantee scheme", with the fund - backed by the EU, ECB or European Stability Mechanism - also having the power to take over struggling banks.
"Once you have got to a point intellectually where you are comfortable with a central European guarantee on all bank deposits, it takes only another small step to accept that this fund should have broader powers," the Sunday Times quoted one financier working on the plans as saying.
The proposals would essentially mean stronger European nations and financial institutions guaranteeing weaker countries and banks. TheSunday Times claimed top advisers to the European Commission believe removing the threat of bank collapses in this way would restore market confidence in Spain and Italy, according to the newspaper.
There are growing concerns that economic problems in Greece and Spain will spread further.
Greece will hold another election on June 17 after a May 6 vote left parliament divided evenly between groups of parties that support and oppose the austerity conditions attached to a €130bn bailout agreed with the European Union and International Monetary Fund in March.
Anti-bailout party Syriza is reportedly the favourite to win the fresh elections, raising questions whether the debt-stricken country - whose economy shrank 6.2pc in the first quarter of 2012 - can remain in the single currency.
In Spain, Bankia - the country's fourth-largest lender - has asked the government for a total bail-out of €23.5bn, while Catalonia, Spain's richest region, has also asked for financial help. Italy is also being watched closely for signs of contagion.
The Telegraph
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