Euro zone finance ministers have made some progress on establishing a budget for the 19-country currency area but have not yet agreed on its size or how it will be funded, their chairman Mario Centeno said. 

Mario Centeno said the Eurogroup of finance ministers had taken "small steps" in a meeting which started on Thursday and ended early this morning. 

But the main features of the possible new budget remained unclear as ministers did not agree on how it should be financed. 

A decision on the size of any euro zone budget is expected to be made by leaders of the wider European Union later in the year, Centeno told a news conference after the Eurogroup's meeting in Luxembourg. 

Centeno said the ministers had reached a "broad deal" on the reform of the euro zone's rescue fund, the European Stability Mechanism, which would give it new powers to handle future financial crises. 

The agreement on ESM reform needs to be finalised in coming months with the adoption of legal texts. 

But ministers did not reach a deal to establish a common insurance scheme for bank deposits, considered key to strengthening the euro zone's banking union and bolstering its resilience in the face of financial crises but which remains a highly divisive issue. 

EU economics commissioner Pierre Moscovici said he was "very disappointed" by the lack of progress on this matter.

Meanwhile, the head of the International Monetary Fund Christine Lagarde said that the euro zone should design its future budget to be able to stabilise its economy rather than just support its competitiveness and convergence. 

Speaking to reporters on the sidelines of a meeting of European Union finance ministers, Lagarde said the EU should also simplify its fiscal rules. 

"We believe that in addition to competitiveness and convergence, which will keep busy the ministers today, we believe this is not enough, that stabilisation would also help," Ms Lagarde said. 

"Simplification of the fiscal rules would also go a long way to avoid a lot of ambiguity and a lot of wiggle room. The debt should be the anchor and the operational tool should be public spending relative to GDP," she added.