European leaders have put the economic crisis behind them by agreeing a landmark bank deal, but stumbled on deeper economic reforms and defence policy, highlighting the tough road to greater EU integration.

Satisfied with a banking union deal that would result in one of the biggest handovers of sovereignty to the European Union since the creation of the euro currency, leaders meeting in Brussels put off plans for the next step in tighter economic policy coordination until late next year.

They also sought greater defence cooperation, but faced British opposition to the EU building its own armed forces.

German Chancellor Angela Merkel began her third straight mandate as leader of Europe's biggest economy this week signalling her determination to get the EU to work towards more centralised economic policy making, even if this requires changes to key EU treaties.

But following the first day of talks at the EU summit Thursday, Merkel said the issue was "not discussed today".

"We think that a true strengthening of the eurozone cannot be achieved without at some point in time taking a closer look at the treaty under-pinnings," she said.

"But it was not something that loomed large on the agenda today, and it would have been quite an uphill battle."

Rather, she said that the issue would be broached only in October 2014, after European Parliament elections in May and a changeover in the EU executive.

The 28 nations in the bloc agreed a landmark bank regulation deal in the hours before the two-day summit opened on Thursday.

The deal was drawn up after failed banks drove countries such as Ireland into bailouts and brought the continent's economy to a halt.

It includes a single body to police and wind up ailing banks, backed by a fund paid for by the banks themselves to avoid using taxpayer money.

All 17 countries -- soon to be 18 with Latvia joining next month -- sharing the euro will be bound to the scheme, while non-euro members have the option of joining.

The banking union is seen as a means to ensure stability in the eurozone, and proponents also hope it will help facilitate much-needed growth and jobs by getting the banks to lend freely again.

British opposition to EU army

With fragile growth of just 1.1 percent and a stubbornly high unemployment rate of 12.2 percent expected for 2014, the eurozone is badly in need of a boost.

At a time when budgets are tight, European leaders struggled to find common ground on boosting military capabilities.

Merkel highlighted the importance of pooling armament capabilities and coordinating defence policy, while French President Francois Hollande suggested that Europeans could work together on building specific military equipment such as drones.

But British Prime Minister David Cameron scoffed at the notion that the EU should have its own military capabilities.

"It makes sense for nation states to cooperate over matters of defence to keep us all safer... but it is not right for the EU to have capabilities, armies, air forces and the rest of it," Cameron said.

"We have to get that demarcation correct between cooperation which is right, but EU capabilities which is wrong," he said.

France is also looking for European partners to join its military intervention to quell sectarian violence in the Central African Republic, with Hollande saying that he was expecting a decision Friday from Poland on whether it would send troops.

"We don't need extra troops but a presence," Hollande told a news conference. "What I would like to see, politically, is a European presence. That it not be said that 'France is alone.'"

Officials said the CAR crisis will be on the table when talks resume later Friday.