A powerful European supervisor should be charged with overseeing the region's banks, and national budgets should be pre-approved by the rest of the bloc before euro-zone states take on responsibility for each others' finances, according to a report that will be the focus of a summit of European Union leaders later this week.

The seven-page paper from EU chiefs sets out ideas for bringing the 17 economies of the euro zone closer together, in an effort to prevent a repeat of the twin crises of government finance and banking that have cast doubt over the survival of the common currency.