Fixing the eurozone -- proposals on the summit table

(BRUSSELS) - EU leaders will on Thursday and Friday thrash out ideas to improve the workings of the eurozone, whose failings have been cruelly exposed during a three-year crisis that has tipped it into recession.

Following are the main ideas on the table proposed by EU President Herman Van Rompuy. Leaders will discuss these suggestions with the aim of taking final decisions at another summit in December.

BANKING UNION

Van Rompuy wants to take the supervision of eurozone banks out of the hands of national authorities and hand it to the European Central Bank. When this is set up, the EU's rescue fund will be empowered to recapitalise banks directly.

However, the major players are deeply divided on the scope and timing of such a supervisory body.

The European Commission and a bloc led by France want to see the ECB take control of some 6,000 eurozone banks ideally at the beginning of next year.

Germany feels this is too ambitious, with Chancellor Angela Merkel saying it is more important to have thorough supervision than to rush.

FISCAL UNION

The EU president has proposed to set up a separate central budget in Brussels just for eurozone member states -- a so-called "fiscal capacity."

This would be used to provide financial incentives to struggling countries to enact reforms and also seek to cushion shocks affecting individual nations.

Van Rompuy has also revived the idea of pooling debt issuance or Eurobonds. "The pooling of some short-term sovereign funding instruments (e.g. treasury bills) on a limited and conditional basis could be examined further," his report says.

However Germany passionately opposes the idea of eurobonds. Berlin believes this could only come at the end of a long process of fiscal integration in the eurozone and is not the right answer to the current crisis.

ECONOMIC UNION

Leaders want to narrow differences in productivity between various eurozone countries that have been in part responsible for the crisis.

One idea floated by Van Rompuy and which has won backing in Berlin is for eurozone countries to sign agreements with the European institutions committing to carry out necessary reforms.

Those countries signed up to such contracts could in turn receive "limited, temporary, flexible and targeted financial incentives."

The European Commission would also receive a strengthened supervision role, checking countries' budgets before they are finalised to make sure they conform to EU rules.

DEMOCRATIC LEGITIMACY

The eurozone crisis has resulted in countries handing over an increasing amount of sovereignty to the unelected European institutions, raising concerns over the democratic legitimacy of the reforms.

The Van Rompuy report insists that democratic control and accountability "should occur at the level at which the decisions are taken."

German Finance Minister Wolfgang Schaeuble however has suggested that only European Parliament members from eurozone countries should be entitled to vote on eurozone issues, raising fears over a two-speed Europe.