EU hopes for 'big leap' with fiscal, political union plan

Among the short-term changes required is the de facto handing over of budget power and economic policies to the EU level.

"Upper limits on the annual budget and on government debt levels ... could be agreed in common," says the paper. Budgets that breach fiscal rules would have to be altered.

A banking union "should evolve as soon as possible." Currently it is difficult to get a picture of the financial health of national banks, while taxpayers foot the bill when things go wrong.

Supervision of all banks would be at the European level and the EU authority would have "pre-emptive intervention powers." The paper - drawn up by the presidents of the European Commission, European Council, Eurozone and European Central Bank - moots giving the European Central Bank the ultimate authority.

In the medium term, so long as a "robust framework for budgetary discipline and competitiveness is in place, some form of debt mutualisation "could be explored."

Meanwhile, labour policies and tax polices - until now a no-go area for the European Commission - will no longer be exempt. An integrated economic eurozone will need "co-ordination and convergence in different domains of policy" says the paper explicitly mentioning "labour mobility" and "tax coordination."

"Let me tell you here that fiscal union is about much more than just euro bonds. It also means more co-ordination in taxation policy and a much stronger European approach to budgetary matters," said commission President Jose Manuel Barroso at the European Policy Centre in Brussels on Tuesday (26 June).

"Faced with this stark reality, standing still is not an option. A big leap forward is now needed."

The paper will form the basis of what are likely to be heated discussions at the EU summit at the end of the week. It is also due to be discussed by the finance ministers of France, Germany, Spain and Italy, meeting in Paris on Tuesday evening.

The ideas in it are supposed to reassure markets that eurozone leaders are politically and financially committed to the single currency. If the paper gets the go ahead, the group of four presidents will will draw up a detailed plan with a timetable for putting measures in to place by the end of the year.

The blueprint is likely to aggravate a key faultline between France and Germany, exposed once again last week. Berlin wants more powers transferred to Brussels if it is to agree to underwriting the debt of other countries. Paris - traditionally reluctant to hand powers to the European Commission - says solidarity must come first.

More broadly, it will test EU leaders commitment to the eurozone - budgetary matters and the right to decide how and on what to spend money go to the core of what it means to be a state.