Barroso envisages 'federation of nation states'

As expected, the speech was dominated by the unveiling of new legal proposals to put the European Central Bank at the heart of a banking union for the eurozone.

But the commission chief also gave a prominent place to ideas on reforming rules for pan-EU political parties, some 18 months ahead of the 2014 European elections.

He said the parties should each propose a candidate for the next commission president.

Centre-right politicians have begun talking openly on whether Barroso himself, or perhaps Polish leader Donald Tusk, should run, while Socialists are expected to back the current EU parliament chief, Martin Schulz for the post.

Meanwhile, according to Barroso, the commission will present an embryonic plan for a new EU treaty before the 2014 vote, in a bid to use the election campaign to debate the future of the 27-country bloc.

In this, he has joined with German Chancellor Angela Merkel, who has also demanded for a re-write of the EU treaties.

Facing down criticism that steps towards closer co-ordination of national budgets and banking union risk undermining democratic legitimacy and accountability, he insisted that treaty change would make EU decision-making "more open and democratic."

Any proposals would include "elements for reinforced democracy and accountability," he said.

He also accused governments of creating a "vicious spiral" by signing up to decisions at EU summits only to undermine them the following day.

"It is not acceptable to present these European meetings as if they were boxing events, claiming a knockout victory over a rival," Barroso said.

EU leaders had regarded the 10-year process needed to ratify the Lisbon Treaty after the collapse in 2005 of the European Constitution as the last major treaty reform for a generation. But the eurozone debt crisis has led to a string of measures to tighten the bloc's rules on debts and budget deficits.

In addition to economic governance laws, including penal fines for non-compliance with debt reduction targets, most EU countries have signed up to the fiscal compact treaty which enshrines the rules in national constitutions.

The former Portuguese prime minister's speech met with a mixed reception on Wednesday.

Liberal group leader Guy Verhofstadt, rejected the idea of a federation of states as "more of the same," calling instead for "a federal union of European citizens."

Hannes Swoboda, the Austrian leader of the Socialist group, welcomed Barroso's repeated commitment to the EU's "social market economy," calling for a policy shift away from what he termed "the current neo-liberal direction of Europe driving countries deeper into recession and people into poverty."

Meanwhile, Martin Callanan, who heads the British Conservative-dominated ECR group, described the demands for treaty change as "the knee-jerk reflex of the European elite to every crisis."