Europe Economy

After Greece: Where next for the euro zone?

The leaders of Europe's most powerful political bodies have called for closer political, monetary and economic ties between euro zone countries to reinforce the region's vulnerable foundations which have taken quite a battering thanks to the various economic and debt crises of the last five years.

The report, prepared by the President of the European Commission, Jean-Claude Juncker, reiterated the founding principles of the 19-country euro zone towards closer economic and monetary union and included a plan to achieve this aim – something, which it said, could help prevent future economic crises.

"The euro is more than just a currency. It is a political and economic project…This common destiny requires solidarity in times of crisis and respect for commonly agreed rules from all members." the report published late on Sunday noted.

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"Europe's Economic and Monetary Union (EMU) today is like a house that was built over decades but only partially finished. When the storm hit, its walls and roof had to be stabilized quickly. It is now high time to reinforce its foundations…To achieve this, we will need to take further steps to complete EMU," it said.

The report was produced in close cooperation with the President of the Euro Summit Donald Tusk, the President of the Eurogroup, Jeroen Dijsselbloem, the President of the European Central Bank, Mario Draghi, and the President of the European Parliament, Martin Schulz.

These high-profile euro zone officials have been dealing with how to boost growth amid a slow recovery of the euro zone area, where the economy grew 0.4 percent in the first quarter of 2015 -- although unemployment remains an issue in many of the region's economies. Greece, in particular, is a bête noire for the euro zone's political and economic leaders, with talks on what reforms Greece must do in return for financial aid reaching crunch time on Monday.

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Noting that Europe was emerging from the "worst financial and economic crisis in seven decades," the report said that a "lot more needed to be done to improve economic policies."

Progress and closer union in the euro area must happen on four fronts, the report noted:

1) Towards a genuine Economic Union that "ensures each economy has the structural features to prosper within the Monetary Union."

2) Progress towards a Financial Union that guarantees "the integrity of our currency across the Monetary Union and increases risk-sharing with the private sector. This means completing the Banking Union and accelerating the Capital Markets Union."

3) Progress towards a Fiscal Union that delivers both fiscal sustainability and fiscal stabilization.

4) And finally, progress towards a Political Union "that provides the foundation for all of the above through genuine democratic accountability, legitimacy and institutional strengthening."

In each case, progress will have to follow a sequence of short- and longer-term steps, the report said, "but it is vital to establish and agree the full sequence today. The measures in the short-term will only increase confidence now if they are the start of a larger process, a bridge towards a complete and genuine EMU."

It urged all euro zone countries to participate in all four of the "Unions" and that the processes needed to complete "a deep and genuine EMU" should be implemented by 2025, at the latest.

Risk-sharing and decision-making

While the euro zone has managed to survive the global financial crisis, there is a growing anti-euro sentiment from within the monetary union.

For some in the southern euro zone, the so-called periphery countries, resentment has grown against what is seen as economic diktats from the more prosperous northern nations like Germany. Likewise, many Germans resent what they see as "bailout out" countries like Greece who they feel have behaved more profligately with their budgets.

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Against that backdrop then, the report's call for more "sovereignty sharing," in terms of decision-making on national budgets, and "risk-sharing," in terms of integrated financial and capital markets, could be controversial.

Going into more detail, the report said that the euro zone area needed to move from "a system of rules and guidelines for national economic policy-making to a system of further sovereignty sharing within common institutions, most of which already exist and can progressively fulfill this task."

The report said that "in practice, this would require Member States to accept increasingly joint decision-making on elements of their respective national budgets and economic policies" – something that would also raise the hackles of euro-skeptic lawmakers in the U.K.

Upon completion of a successful process of economic convergence and financial integration, the report noted that "this would pave the way for some degree of public risk sharing, which would at the same time have to be accompanied by stronger democratic participation and accountability both at national and European levels."

The report conceded that some of the above steps would "require changes to the EU's legal framework -- some more profound than others" – as well as well as significant progress in terms of economic convergence across the region.

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld