President of the European Commission Jose Manuel Barroso, Wednesday, Sept 12, 2012, at the European Parliament in Strasbourg, eastern France. The European Commission wants the European Central Bank to be the supervisor for all the banks in the 17 countries that use the euro and have the power to fine institutions. (AP Photo/Christian Lutz)
President of the European Commission Jose Manuel Barroso, Wednesday, Sept 12, 2012, at the European Parliament in Strasbourg, eastern France. The European Commission wants the European Central Bank to be the supervisor for all the banks in the 17 countries that use the euro and have the power to fine institutions. (AP Photo/Christian Lutz)
President of the European Commission Jose Manuel Barroso, left, gestures, with Michel Barnier, commissioner for interior market in the background, Wednesday, Sept 12, 2012, at the European Parliament in Strasbourg, eastern France. The European Commission wants the European Central Bank to be the supervisor for all the banks in the 17 countries that use the euro and have the power to fine institutions. (AP Photo/Christian Lutz)
President of the European Commission Jose Manuel Barroso delivers his statement on the state of union, Wednesday, Sept 12, 2012 at the European Parliament in Strasbourg, eastern France. Barroso said that EU countries need to realize they are in the crisis together, and that they must work together to get out of it. The Commission is the EU's executive branch. (AP Photo/Christian Lutz)
President of the European Commission Jose Manuel Barroso delivers his statement on the state of union, Wednesday, Sept 12, 2012, at the European Parliament in Strasbourg, eastern France. The European Commission wants the European Central Bank to be the supervisor for all the banks in the 17 countries that use the euro and have the power to fine institutions. (AP Photo/Christian Lutz)
STRASBOURG, France (AP) ? 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 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 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.
Jose Manuel Barroso, the Commission's president, 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 solve 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."
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 this 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 would also 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 stays 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, 2013, 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 have also 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 have also 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.
The Commission's proposal, published Wednesday morning, still needs to be approved by the European Parliament and the Council, on which the heads of state or government of all 27 countries of the European Union sit.
It could be a tough fight since Germany, one of the eurozone's most powerful members, has said it wants the ECB to supervise only those banks which, if they were to go bankrupt, would cause major damage to the eurozone.
German officials have also expressed alarm at the timetable proposed, saying it risks creating just a slap-dash supervisor.
"What is important above all is that this supervisor can work in terms of quality ? not just that it comes into force as quickly as possible but then doesn't work," Merkel told lawmakers in Berlin on Wednesday. "This is about the quality of supervision, and not just about the quantity."
EU internal market commissioner Michel Barnier, whose team was largely responsible for drafting the proposal, sought to downplay these concerns, noting that the ECB would rely heavily on the experts already in place at national supervisors.
He also said the bank would slowly ramp up its powers of supervision over the course of a year, although he did not back off the goal of getting it up and running on Jan. 1, 2013.
Earlier, a European Union official mounted a more vigorous defense of the proposal, warning that a slimmed-down supervisory system would be "irresponsible."
"What the crisis has taught us is that even medium or small banks can create lots of damage," said the official, who would speak only on condition of anonymity to describe how the proposal was put together.
"So it would be irresponsible to devise a system that basically says we're going to focus our attention on the large ones and the small ones: just, you know, don't think about them," she said.
In a statement issued Wednesday, the ECB said it welcomed the Commission's proposal.
The plans could heap even more responsibility on the central bank. There is a provision allowing any of the 10 countries in the European Union that don't use the euro to sign up to the supervisory system as well.
In his speech Wednesday, Barroso also warned that the financial crisis is "fueling populism and extremism" in Europe.
"Europe needs a new direction," he said.
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Geir Moulson in Berlin and Don Melvin in Brussels contributed to this report. Melvin can be reached at http://twitter.com/Don_Melvin . DiLorenzo can be reached at http://twitter.com/sdilorenzo .
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