"Recent developments have demonstrated the need to take the EMU (Economic and Monetary Union) to a further stage," said the draft conclusions, obtained by Reuters.

"The new stage will build on deeper policy integration and coordination. There is a need for more specific building blocks centered around a much stronger banking and fiscal integration, underpinned by enhanced euro governance," the draft said.

The text of the summit conclusions is to be discussed by EU ambassadors on Thursday.

European Commission President Jose Manuel Barroso, European Central Bank President Mario Draghi, Eurogroup Chairman Jean-Claude Juncker and European Council President Herman Van Rompuy have been given the task of reporting to the summit on closer euro zone integration.

"The report commissioned on May 23 on steps towards a full economic and monetary union will set out the main blocks, some concerning all the member states of the Union, others only the members of the euro area and, as appropriate, others willing to join," it said.

"It will also give indications on the working method and the timing to achieve this objective. This topic will also be discussed in the euro summit following the European Council."

(Reporting by Luke Baker and Jan Strupczewski; editing by Rex Merrifield)

• A Permanent Economic Emergency