The European Commission has proposed new powers for the European Central Bank to police around 6,000 banks in the 17 countries that use the currency.

Speaking at his annual state of the union address, European Commission president José-Manuel Barroso, said: 'The Commission has presented proposals for a single European supervisory mechanism, a major step to a banking union. 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. The European parliament will have a crucial role to play in ensuring democratic oversight.

'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.'

At the heart of the plan to create a banking union is for the ECB to get the necessary powers to oversee all the eurozone's banks, to establish a fund to close troubled banks, and to create a fully-fledged scheme to protect citizens' deposits across the eurozone.

Both the UK and Germany have expressed concerns about the reforms which must be approved by all EU member states, and will require countries to surrender an element of sovereignty over supervising their own banks.

The European Commission has also suggested creating a voting mechanism among all EU regulators as a counterbalance to the power of those in the eurozone.

Creating a shared framework for dealing with problematic banks would ensure a more cogent tack for the eurozone's 17 members to the existing system which has seen weaker countries forced to borrow at ever escalating rates.

The ECB also proposes to take the lead role at the helm of the current system of national regulators, with the right to oversee, punish and shut down delinquent banks.

Other proposed powers to monitor banks' liquidity and compel them to squirrel away more money to protect against potential future losses were also mooted.

The new regime has a target introduction date of early 2013, but reaching full agreement on the minutiae of the union, may make this an ambitious target.