A long-term solution to the crises rippling through the 17-nation eurozone will require the creation of a central finance ministry with the power to exercise controls over national budgets, Jean-Claude Trichet, president of the European Central Bank, said on Thursday.

Speaking in Aachen in Germany, Trichet urged closer European integration as the means of imposing discipline on countries which failed to keep their public finances in order, monitor economic reform and provide a common approach to dealing with Europe's financial sector.

The ECB president said his plan would fall short of giving a pan-European finance ministry tax-raising powers, but suggested that the idea was a logical next step.

"In this union of tomorrow, or of the day after tomorrow, would it be too bold, in the economic field, with a single market and a single central bank, to envisage a ministry of finance of the union?" he said as he accepted the Charlemagne prize for contributions to European unity.

Trichet's intervention came on the eve of Friday's announcement of the terms Greece will have to accept for a second bailout from the EU and IMF.

Trichet acknowledged that a central ministry would be a radical step for the European Union and require a revision of its underlying treaty. While supporters of closer integration believe there is currently little political appetite in member states for a fresh transfer of powers to the centre, they argue that the only alternative to closer fiscal union will be the break-up of the single currency.

"Looking at the euro area today, we see clearly that countries that abide by the rules of the single currency can thrive and prosper," Trichet said. "But we also see the opposite. Strengthening the rules to prevent unsound policies is therefore an urgent priority."

Trichet said international bailouts of countries in exchange for their pledges to reform their finances – the model which has been followed for Greece, Ireland and Portugal – were reasonable as an initial response to debt crises.

"But if a country is still not delivering, I think all would agree that the second stage has to be different," he said, suggesting that eurozone authorities be given "a much deeper and authoritative say in the formation of the country's economic policies if these go harmfully astray".

He added: "It would be not only possible, but in some cases compulsory, in the second stage for the European authorities – namely the council on the basis of a proposal by the commission, in liaison with the ECB – to take themselves decisions applicable in the economy concerned."