EU unveils its vision for the future of monetary union
European authorities have unveiled their vision for the future, which gives them much greater powers.
It includes the creation of a European treasury, which would have powers over national budgets.
European Commission President Jose Manuel Barroso said it was "a defining moment for European integration".
The 10-year plan is designed to strengthen the eurozone and prevent future crises, but critics say it will not address current debt problems.
This week, some markets fell sharply on fears that leaders at the EU summit on Thursday and Friday would fail to agree immediate measures to try to stem the current crisis, which has now engulfed five eurozone members.
Spain is negotiating the terms of loans worth up to 100bn euros for its banks, and the new Greek government wants to ease the terms of its huge bailout.
The governor of the Bank of England, Sir Mervyn King, expressed concern about the recent response of European authorities.
"I am pessimistic. I am particularly concerned because over two years now we have seen the situation in the euro area get worse and the problem being pushed down the road," he said, while appearing at a parliamentary hearing.
The latest document , titled Towards a Genuine Economic and Monetary Union, was released by European Council President Herman Van Rompuy and was drawn up with the presidents of the European Commission, the Eurogroup and the European Central Bank.
Eurogroup president Mr Van Rompuy said it was "not meant to be a final blueprint", but that he expected "to reach a common understanding amongst us on the way forward" at the EU summit.
European Commission President Jose Manuel Barroso said the guiding principle was that "greater solidarity and greater responsibility must go hand in hand".
Proposals in the report included:
- Limits on the amount of debt individual countries can take on
- Annual national budgets can be vetoed if they are likely to mean a country exceeding its debt limits
- The eurozone borrowing money collectively "could be explored"
- A European treasury office to be set up to control a central budget and keep an eye on national ones
- A single European banking regulator and a common scheme guaranteeing bank deposits
- Common policies on employment regulations and levels of taxation
- Joint decision-making with national parliaments to give it "democratic legitimacy"
One of the big changes under the new proposals is that while in the past eurozone members had to keep their budget deficits below a certain level, a European treasury would be able to force them to make changes to their budgets to keep their deficits down.
Earlier, German Finance Minister Wolfgang Schaeuble also called for there to be a European finance minister, with the power to veto national budgets as well as an elected president of Europe.
The document said greater fiscal union could lead to common debt being issued by eurozone countries.
Eurobonds, as they are known, would help weaker countries such as Spain borrow more cheaply, but they have so far been resisted in Germany, as they require stronger countries to take on the risk.
"By beginning with pooling of debt, we're heading toward a dead end," said Germany's deputy foreign minister Michael Link.
Chancellor Angela Merkel, who this week described eurobonds as "counterproductive", may have gone further on Tuesday. According to one account given to a news agency, she told a political meeting that that would be no shared debt "as long as I live".
French Finance Minister Pierre Moscovici has said leaders at this week's summit should, "lay the groundwork for the second phase of the euro".
As BBC Europe editor Gavin Hewitt points out, the area's two biggest economies "are on different pages" about how to fix the crisis.
"It has generally been true that the European project has been driven forward when France and Germany are in step.
"They are not at the moment. There is a deep philosophical and political divide between them," our correspondent says.
Others were also sceptical about what might be achieved at the summit.
"The EU summit will likely produce re-hashed plans for closer fiscal integration and a banking union but without any substantive detail of how it will actually be put into practice," said analyst Neil MacKinnon of VTB Capital.