STRASBOURG, France — European Union officials are asking national governments to give up control of their banks as they try to pull the region closer together to solve its crippling financial crisis.
In a proposal that represents one of the most significant surrenders of national sovereignty since the creation of the euro in 1999, the European Commission, the EU's executive arm, proposed Wednesday to make the European Central Bank (ECB) the single supervisor for all 6,000 banks in the 17 countries that use the currency.
The commission wants to give the ECB sweeping powers, from the ability to grant and take away banking licenses to extensive authority to investigate and fine wayward banks.
Commission President Jose Manuel Barroso warned that giving up control of banks would be just the start and that countries would have to get used to handing over powers to Europe in order to resolve the region's debt problems.
"We cannot continue trying to solve European problems just with national solutions," he said in his annual State of the Union address to Parliament in Strasbourg, France.
"A deep and genuine economic and monetary union means ultimately that the present European Union must evolve," he added. "And let's not be afraid of the words. We will need to move toward a federation of nation states."
Mr. Barroso's remarks go to the heart of the debate about the survival of the eurozone -- whether countries can continue to share a common currency without a unified political system.
As part of forging a tighter EU, many observers and politicians have called for a "banking union" -- a unified playbook for all the region's banks. The creation of a single bank supervisor is an important part of that plan.
Other measures being debated include: a European-wide system of depositors' insurance; a single method for winding down bankrupt banks; and allowing the European bailout fund to directly help banks in trouble, instead of lending money only to governments.
In its proposal, the commission called for the European Central Bank to take over supervisory roles from the member countries' national banking regulators. Currently, the ECB is only in charge of monetary policy for eurozone countries -- setting interest rates and printing money.
The plan also would give the ECB the ability to issue and revoke banking licenses, approve large mergers and acquisitions, investigate banks and fine institutions that break the rules.
In order not to overwhelm the ECB, the plan will leave day-to-day supervision with national authorities. The power to wind down banks in trouble also would stay with individual countries, but the EU official said it would eventually be given to the ECB.
The commission hopes its proposal will take effect Jan. 1, first handing ECB power over the eurozone's bigger banks and eventually adding the rest of the 17-country bloc's lenders a year later.
Europe's banks are at the heart of the region's financial crisis. The government bonds that the banks bought up during the eurozone's boom times are no longer considered safe bets, and the banks are struggling to unload them -- usually at hefty losses.
On top of this, banks also have had to contend with real estate loans that have turned toxic following the collapse of real estate markets in some countries.
Across the eurozone, governments have had to step in and prop up the banking sector.
But rescuing banks is expensive and has added to investor concerns that European countries' debt loads are becoming increasingly unsustainable.
Many banks also have drastically cut back their business, lending to fewer companies and households and ditching investments in other eurozone countries -- especially in Greece, Italy and Spain.
As well as freezing up the eurozone's economy, this retrenchment has undermined one of the primary purposes of the single currency -- to allow money to flow freely and cheaply across national borders.