Credit rating agencies may have to tell a country three days in advance if they plan to downgrade its sovereign debt, according to a European Commission consultation document.
The European Central Bank or national central banks could also be "entrusted" with issuing some ratings to increase competition, the document also said.
Another idea is to limit publication of sovereign debt rating changes until after the market close in Europe to help smooth out shocks.
The Commission wants to dilute the influence rating agencies have in financial markets. Investors will face increased pressure to come up with their own assessments of risks in securities like the government and company bonds they want to buy.
EU policymakers are eager to prevent a repeat of Standard & Poor's demotion of Greece to "junk" status earlier this year, which aggravated attempts to mount a rescue package for Athens and win back confidence in the euro currency.
Apart from possibly requiring early warnings to countries who face big rating changes to give them time to challenge any "factual errors" agencies could also face having to disclose, free of charge their full research on public debt.
EU states could also agree not to pay for sovereign ratings, the consultation document said.
Europe and others in the world's Group of 20 leading economies are already implementing a pledge forcing agencies to obtain authorisation and be more transparent.
The EU consultation concedes that completely eliminating ratings from the calculation of bank regulatory capital requirements does not appear to be a "realistic" solution.
Instead, a more practical approach could be to force banks to obtain ratings from at least two different agencies to improve accuracy, the consultation document said.
The consultation is part of the G20's second front against rating agencies.
The G20 summit in Seoul next week will also endorse global recommendations on reducing reliance on ratings that will shape the EU's likely legislative response next year.
The sector is dominated by just three agencies, Standard & Poor's, Moody's and Fitch Ratings and was badly tarnished in the financial crisis after highly rating securitised products that became untradable, helping to trigger firesales and bank rescues.
The EU consulation looks at ways to increase competition in the "oligopolistic" sector but any initiative to create a European rating agency should be carefully assessed to avoid distorting markets or denting the quality of ratings, the consultation document said.
Reuters