Closer union 'urgent' - EU Commission chief Barroso

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Media captionJose Manuel Barroso: "I will urge EC to make concrete commitments towards a fully developed economic and monetary union"

European governments need to agree urgently on steps to forge a closer union because of the eurozone's "systemic problem", the head of the European Commission says.

Commission President Jose Manuel Barroso called for a "vision of where we need to go".

"I am not sure whether the urgency of this is fully understood in all the capitals," he told Euro MPs.

The eurozone debt crisis will again dominate an EU summit in late June.

In the latest blow to eurozone stability, the Spanish government's cost of borrowing reached a record high on Tuesday, despite an EU rescue of up to 100bn euros (£81bn; $125bn) promised for its heavily indebted banks.

Mr Barroso said the EU decision to recapitalise Spanish banks last weekend showed the EU's "ability to react quickly". "But we need also the perspective of the medium and long term," he added.

This month the Commission - the EU's executive arm - has released a blueprint for a banking union. Its key elements would be: a new bank bailout fund financed by a tax on financial institutions; an EU-wide deposit guarantee scheme to protect savers; a single regulator to oversee banks.

The plan will be discussed by EU leaders at a summit on 28-29 June.

Integration plea

Without referring to speculation about a possible Greek exit from the eurozone Mr Barroso insisted that building a banking union and fiscal union must be done "as far as possible with all member states".

He said further integration of the 17-nation eurozone was "indispensable", but "under no circumstances must this be seen as an alternative to the integrity of the single market, or indeed the integrity of the union as a whole".

"Fragmentation is not an option," he said. The EU must continue allowing for opt-outs, such as the refusal of the UK and Denmark to join the euro, but "they remain the exception, not the rule", he said.

The EU's enhanced co-operation procedure allows a minimum of nine EU countries to forge ahead with closer co-operation, even if the others in the 27-nation bloc do not join in.

Forging a fiscal union to bolster the euro is likely to mean agreeing to controversial measures such as more co-ordination on taxes and launching "eurobonds" - called "stability bonds" by the Commission. Eurobonds would be a way to pool eurozone debt, making weaker economies less vulnerable.

There were sharply contrasting views among MEPs who heard Mr Barroso's speech in the European Parliament in Strasbourg.

Guy Verhofstadt, leader of the liberal group ALDE, said "the problem is not Europe - the problem is not enough Europe!". "Federal Europe is the solution."

But the Eurosceptic British MEP Nigel Farage said: "The euro Titanic has now hit the iceberg - and there simply aren't enough lifeboats to go round."

Tough negotiations are under way on the EU's 2014-2020 budget, with some member states arguing that the Commission's funding targets are too ambitious in the current climate of national belt-tightening.

The total proposed by the Commission for the budget, called the Multi-annual Financial Framework (MFF), is 1.025tn euros.

Mr Barroso defended the Commission's budget plan, calling it a vital engine for economic growth and equivalent to 1% of total EU output (GDP) and less than 2.5% of all public spending in the EU.

Since 2009 the EU has provided 97% of total public investment in Hungary, 78% in Lithuania and more than 50% in Poland through the "cohesion" budget, he said.