The proposals, submitted to European capitals for review Monday night, are to be discussed at a leaders' summit of all 27 EU countries in Brussels Thursday and Friday, the Financial Times reported Tuesday.
The authors of the draft -- European Council President Herman Van Rompuy, European Commission President Jose Manuel Barroso, European Central Bank President Mario Draghi, and Eurogroup President Jean-Claude Juncker, representing eurozone finance ministers -- fine-tuned the proposals during a meeting Monday, said the newspaper, which saw the draft.
The proposals are part of a larger plan to turn the eurozone into a closer fiscal union and give the EU powers to function as a eurozone finance ministry, the newspaper said.
Leaders at the summit are also expected to debate the merits of a banking union that would be international in scope and have the power to liquidate banks that were on the brink of failure.
The banking union would also give stronger regulatory power to the European Central Bank and include a fund to guarantee bank deposits, The New York Times reported.
It would take at least until 2013 to put together such far-reaching changes and that assumes that German Chancellor Angela Merkel drops resistance to various proposals.
Merkel has said the financial system needs a stronger central authority to monitor and manage fiscal decisions of member states before other changes are made.
The draft proposals currently do not call for immediate moves toward full-scale eurobonds, but suggests the EU study interim steps, including cooperation on short-term debt in certificates known as eurobills.
The draft plan proposes that if a eurozone country breaks its debt and deficit commitments, the EU's executive body, the European Commission, would have the power to recommend detailed budgetary adjustments that would be put to a vote of all EU countries, the Financial Times said.
The budget amendments would be described as a "proposal" -- but the newspaper said the EU has strong new tools, including the ability to levy big fines, to punish countries that do not adopt such proposals.
A draft of the proposals released Tuesday said, "Under these rules, the issuance of government debt beyond the level agreed in common would have to be justified and receive prior approval."
"Subsequently, the euro area level would be in a position to require changes to budgetary envelopes if they are in violation of fiscal rules, keeping in mind the need to ensure social fairness," the draft says.
The report also outlines plans for a political union, the Times said.