By Jan Strupczewski and Francesco Guarascio
BRUSSELS (Reuters) - The European Commission proposed on Wednesday near-term improvements to the way the euro zone runs its economy as part of a broader plan to more deeply integrate the single currency area and avoid future crises.
The euro zone can only function well if the economies of its members do not widely differ from each other in terms of competitiveness and performance, because with 19 countries sharing one currency competitive devaluation is not possible.
The Commission, the European Union's executive arm, proposed therefore to set up special institutions that would monitor how competitive their economies are and how quickly wages can grow.
The so-called Competitiveness Boards in each euro zone country would be independent and consider competitiveness in the broad sense -- looking not only at cost, but also at productivity, skills, the attractiveness of the business environment, and innovation.
Because the euro zone has one monetary policy for all its members, governments must better coordinate their fiscal policy with each other, or face a sovereign debt crisis like the one triggered by Greece in 2010.
To help achieve that, the Commission said it would streamline the existing but highly complex EU budget rules.
But it also wants to create next year a separate, independent European Fiscal Board that would act as an advisory body on the best fiscal stance for the euro zone as a whole and coordinate the work of existing national fiscal boards.
To boost citizens' confidence in euro zone banks, shaken by the troubles of the financial sector in Cyprus, Greece, Ireland and Spain, the Commission proposed to create a European system for insuring bank deposits.
Such a system would help create a European Banking Union, under which euro zone lenders are already under the supervision of one institution -- the Single Supervisory Mechanism -- and are subject to the same resolution rules, if they were to fail.
Germany is sceptical about a European deposit guarantee plan because it is concerned that countries which do not have an existing deposit guarantee plan could try to piggy-back on Germany, which has one, in case savers elsewhere need rescuing.
Officials said that the Commission, which will make legislative proposals later this year, would therefore propose that euro zone countries could only access money accumulated in a euro zone deposit guarantee fund once they have a fully funded national deposit guarantee scheme.
A further requirement for an EU-wide deposit plan would be that all countries transpose into national law an EU directive which makes banks shareholders, bond holders and even large depositors liable for bank losses before any public cash is spent on rescuing a failing financial institution.
Finally, the Commission proposed to merge euro zone representation at the International Monetary Fund into a single seat over the next 10 years to give the single currency area more clout.
"Due to the current institutional set-up, the euro area does not speak with one voice and punches below its weight," it said.