EU unveils its vision for the future of monetary union

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 document, released ahead of Thursday's EU summit, said greater fiscal union could lead to common debt being issued by eurozone countries.

There would also be banking union, with a single European banking regulator and a unified deposit guarantee scheme.

The document 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.

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 Thursday and Friday's summit.

Mr 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".
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.

French, German, Spanish and Italian finance ministers are meeting on Tuesday to discuss closer union.

French Finance Minister Pierre Moscovici has said Thursday's EU summit should, "lay the groundwork for the second phase of the euro".Joint borrowing Continue reading the main story
Many governments outside the eurozone have called on it to issue eurobonds, which would be a way to allow countries that are currently unable to borrow money commercially to borrow at low interest rates.

But some countries, especially Germany, have resisted this step unless there is much closer fiscal union.

The reason for that is that eurobonds would have much the same effect as the original introduction of the euro, which is that they would allow many governments access to cheaper loans.

There is therefore concern that without European control over budgets, some countries would again take on unsustainable levels of debt.

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 will now be able to force them to make changes to their budgets to keep their deficits down.

BBC