Barroso to unveil 'political union' plan at EU summit

Barroso, EU Council president Herman Van Rompuy, European Central Bank chief Mario Draghi and Jean-Claude Juncker - the head of the euro-using countries' club, the Eurogroup - are drafting a joint paper on how EU leaders can stop the crisis.

The text will be a political manifesto rather than a legal proposal, officials say.

"I will urge the European Council to take concrete commitments towards a fully developed economic and monetary union and a process that maps out the steps how to get there," Barroso told MEPs.

He said countries must agree here and now to generous EU spending in the 2013 to 2020 period.

He noted that 97 percent of public investment in Hungary and over 50 percent in Poland comes from EU funds. "What would the situation be in these countries without the contribution of the European budget?" he asked.

He also urged governments to "refine" the rules of the EU bail-out fund, the ESM, to make it easier to help struggling banks and to adopt last week's commission proposal for EU banks to set aside more rainy day capital.

He said the next step - which "might require [EU] treaty changes" - would be a "banking union."

The move would see EU-level bank supervision, a joint deposit guarantee fund and a new fund dedicated to bailing-out big banks which get into trouble.

Barroso's final step - fiscal and political union - would see EU countries issue joint bonds, co-ordinate tax policy and co-ordinate national spending on everything from healthcare to schools and social welfare.

He noted that some non-euro-using countries might want to stay out. But he added: "Our economic relations bind us all: euro area members and non-members alike, our futures are linked."

Leading MEPs said things should move more quickly.

Belgian liberal Guy Verhofstadt said the summit paper should be a legal proposal for creating a "federal union" and that commission budget plans should call for "own resources" - direct taxation of EU citizens by Brussels.

French centre-right deputy Joseph Daul said that - to increase democracy - the EU parliament president should take part in EU summits instead of leaving the room after making a speech.

Austrian centre-left MEP Johannes Swoboda held up a copy of The Economist - a magazine - with a picture of the EU as a sinking ship.

"Please can we start the engines now Mrs Merkel ... not in one or two years' time?" he asked, referring to the German Chancellor's step-by-step approach to the crisis.

British eurosceptic Nigel Farrage, a former investment banker, said the "euro-Titanic" has "hit the iceberg."

He noted that Rome is borrowing money from markets at almost seven percent in order to lend its €20 billion part of the Spanish rescue to Madrid at three percent. "We're actively driving Italy toward a bail-out," he said.

Barroso already floated his banking union idea in a speech in May and again in a Financial Times interview on Monday.

For her part, German Bundesbank vice-president Sabine Lautenschlaeger on Wednesday told the Financial Times Deutschland that the banking union is unthinkable without fiscal/political union at the same time.

"Whoever accepts liability also has to have a right to control [it]," she said.