Europe Must Become Federation of States: EU's Barroso

Published: Wednesday, 12 Sep 2012 | 5:44 AM ET

European Commission President Jose Manuel Barroso called for more European integration to help tackle the euro zone debt crisis in his State of the Union speech on Wednesday through the creation of a “federation of nation states”.

ChinaFotoPress | Getty Images Jose Manuel Durao Barroso, President of the European Commission

"I call for a federation of nation states. Not a superstate. A democratic federation of nation states that can tackle our common problems, through the sharing of sovereignty in a way that each country and its citizens are better equipped to control their own destiny,” Barroso said.

He added that the creation of such a federation would ultimately require a new treaty.

The Commission will present ideas for changes to the existing treaty before 2014, he said.

In his speech, Barroso called for a full fiscal union and was critical of member states who did not fully support decisions taken to stem the debt crisis.

“On too many occasions we have seen a vicious spiral. First very important decisions for our future are taken at European summits, but then the next day we see some of those very same people who took those decisions undermining them,” he said.

Karsten Schroeder, CEO of Amplitude Capital told CNBC, Barroso was “probably right” in calling for more integration to save the euro and fix the debt crisis.

“When you see the comments from the U.S. and from Asia it’s the same direction – they want to see Europe operate as one big ship. Because what’s happening now is not only posing a big threat to the European economy but to the global economy, if we see a very uncoordinated disintegration of the euro [EUR=X  1.2881    0.0027  (+0.21%)   ] ,” he said.

“So I think given the situation we’re in, we need more European leadership, we need more power to the central European organizations, otherwise we cannot solve this crisis,” he said.

“Brussels needs more power. You can see that with the ECB (European Central Bank) how they’ve clearly taken over a lot of power from the local central banks. I think that’s what we have to see on multiple levels. When it comes to fiscal policy we need a much higher level of integration within Europe,” Schroeder said.

In his speech, Barroso also outlined proposals to move towards a European banking union under which the ECB would monitor all euro zone banks.

"This new system, with the European Central Bank at the core and involving national supervisors, will restore confidence in the supervision of all banks in the euro area," Barroso said in a statement released by the European Commission.

"We want to break the vicious link between sovereigns and their banks. In the future, bankers' losses should no longer become the people's debt, putting into doubt the financial stability of whole countries."

Barroso want the European supervisor in place by the start of next year.

Tom Elliott, global strategist at JPMorgan told CNBC: “An EU banking union is necessary to solve the euro crisis. (…) It will lower the risks of having to deal with another type of systemic failure in the banking system.”