The document on public finances in the Economic and Monetary Union (EMU), warns that low public spending by governments is holding back the single currency area.
And it says investment by countries is a top priority as EU chiefs panic about huge economic differences between member states.
The document even demands governments manage their finances better and local authorities must up their game.
Spain is particularly singled out for criticism, with a warning there is “historically low investment” by its local authorities of just 1.3 percent of GDP.
It states that the collapse in public investment since the financial crisis is affecting the Spanish regions’ ability to “converge” with others.
The new document claims lessons from a previous report had not been learned and national governments need to take much radical action.
It said: “Government investment remains at the top of the policy agenda in the EU.
“Last year’s edition of the report dedicated a full part to government investment.
“It concluded the existence of investment gaps in the EU and that higher investment was needed to achieve both short and long term benefits.”
Brussels chiefs want changes in “governance quality” across the bloc and are demanding improvements.
It goes on: “Governance quality is a key element to improve the value for money.
“This is the case both at the national and the sub-national level in all Member States.
“Improvements are possible in all phases of the investment process, in particular with respect to administrative capacity, coordination and evaluation.”
Marco Buti, Director General Economic and Financial Affairs, said changes were “essential” for the EU to continue growing.
He said: “Going forward, taking advantage of better times to reduce high public indebtedness and improve public policy governance and institutions would boost public investment.
“This is essential to improve our growth potential, with all its beneficial effects on the social fabric.
“Conversely, reducing income inequality via well designed fiscal policy may strengthen the capacity of governments to carry out needed policies, not least to boost fiscal sustainability and restoring fiscal buffers.”