The European Union's executive arm will propose a raft of new measures on Wednesday that include a reform of financial supervision and bankers' pay, a draft document showed.

European Commission President Jose Manuel Barroso is set to publish the draft as part of efforts to tackle a crisis that has frozen financial markets and sent investors fleeing.

"In the light of this analysis, by the end of May, the Commission will present proposals on the architecture of the future European financial supervisory system for decision at the June European Council," the draft, obtained by Reuters on Tuesday, said.

The document backs recommendations made last week by a group headed by former Bank of France Governor Jacques de Larosiere.

It said two new pan-EU supervisory bodies should be set up, the first hosted by the European Central Bank to monitor system-wide risks, the other gathering national supervisors that monitor day-to-day operations of banks, insurers and markets.

"The legislative changes to give effect to these proposals will follow in the autumn and should be adopted in time for the renewed supervisory arrangements to be up and running in the course of 2010," the draft added.

The Commission will propose compressing de Larosiere's two-phase approach to streamlining day-to-day supervision.

The measures will need backing from the European Parliament and EU governments to become law.

Barroso's paper gives an overview of financial reforms so far undertaken since the worst financial crisis in decades began unfolding.

"First signs show that the European Economic Recovery Plan (EERP) is having the intended effect. The overall fiscal stimulus to the economy amounts to 3.3 percent of GDP," the document said.

"Measures to counter the short-term impact of the crisis should be aligned to longer term objectives and the need to return to sustainable public finances," the document said.

"Cleaning up the banking system is a prerequisite for a return to normal credit conditions. The European Central Bank for the euro zone, along with other central banks, have been providing considerable liquidity. They have already cut interest rates and there could be scope for further reductions."

The document said the "ambitious" path of financial regulatory reform would set a clear course for the EU to lead and shape global change in particular through the work of the G20 industrial and emerging nations, which meets in April.