Brussels  - European Union efforts to revive "zombie banks" poisoned by toxic assets and to jointly supervise the bloc's troubled financial sector gained momentum Wednesday as experts in Brussels issued a series of recommendations to member states.

But those pushing for the swift creation of a pan-European supervisory body were set for disappointment, with officials saying such an option was currently "unrealistic".

"The (global financial) crisis has shown why we must deepen our supervisory cooperation at EU level. Why we must have better crisis management systems," said European Commission President Jose Manuel Barroso.

"We must avoid ... 'chacun pour soi' solutions - every man for himself - with no concern whatsoever about the neighbours," the head of the EU executive in Brussels said.

A report published in Brussels and compiled by Jacques de Larosiere, a former head of the International Monetary Fund (IMF) and of the French central bank, calls on EU governments to create three new supranational supervising authorities.

Such authorities would be independent and would replace the existing, but weak, European committees which currently oversee the bloc's banking, insurance and financial sectors.

While falling short of pushing for a single pan-European watchdog, the report's recommendations, if accepted, would nevertheless strengthen cooperation on financial matters between the EU's 27 member states. They would also help resolve disputes between different national authorities.

Officials hope to avoid a repeat of the confusion seen over who should deal with Fortis - a troubled bank whose main operations spread across Belgium, the Netherlands and Luxembourg.

Existing national supervisors would continue to carry out domestic day-to-day oversight, while a council of supervisors would issue EU- wide early warning signals.

De Larosiere said the creation of a single European watchdog would likely have been met with hostility in some member states.

For instance, such a supranational body would have been able to tell national governments what to do, while not being directly accountable to taxpayers.

Europe's largest financial centre, the City of London, is particularly wary of ceding powers to Brussels.

Under the proposed system, top officials from the Bank of England would play a "central" role by helping mould decisions with other European central bankers, de Larosiere said.

His report, which is 85 pages long and took four months to compile, produced a total of 31 recommendations. It criticized incentive schemes that induced managers to favour short-term, risky investments, and accused existing supervisors of "fundamental failures" in the assessment of risk.

The head of the European Parliament's Socialist group, Poul Nyrup Rasmussen, welcomed de Larosiere's "pragmatic" approach and highlighted his proposals on capital requirements and reporting requirements for hedge funds - funds that often use high-risk investment techniques.

Officials said EU heads of state and government would discuss the report at a series of meetings taking place in Brussels ahead of a Group of 20 (G20) summit in London in early April.

Given the current financial crisis, failure to reach an agreement among EU member states "would be a grave mistake", Barroso said.

Also on Wednesday, the European Commission issued revised guidelines on how to dispose of toxic assets held by European banks.

The guidelines are designed to ensure a level playing field within the 27-member bloc. They look at the possibility of creating so- called "bad banks" in which to dump dodgy liabilities, or setting up asset insurance schemes, an option already chosen by Britain.

Drafted by three EU commissioners, they include calls for greater transparency, common principles on the valuation of such assets, and adequate burden-sharing of the costs between the private and public sector.

Banks seeking government help should be given just six months to report all toxic assets in their possession, the guidelines state.

"If we don't face up to this issue we risk prolonging this crisis with zombie banks that are incapable of performing a useful role in our economies," said Internal Market and Services Commissioner Charlie McCreevy.

The International Monetary Fund has estimated that global bank losses due to the circulation of such bad assets could eventually reach 2.2 trillion dollars. Others believe a more realistic figure is 3.6 trillion dollars for the United States alone. (dpa)