The anti-corruption group Transparency International says close ties between business and government across Europe have undermined economic stability. It singles out southern European countries as especially corrupt.
The 63-page document showed a "strong correlation" between failure to rein in public spending and inability to tackle graft.
"This report raises troubling questions at a time when transparent leadership is needed as Europe tries to resolve its economic crisis," said Cobus de Swardt, the organization's managing director in a statement ahead of the publication.
The report assessed the situation across 25 European countries and found Greece, Italy, Portugal and Spain to have serious deficits in public-sector accountability and deep-rooted problems of inefficiency and malpractice.
It said that, among the European Union's new members, Bulgaria and Romania continued to cause the most concern, as the anti-corruption laws they had introduced to comply with EU demands had not borne fruit.
Transparency International praised the Denmark, Norway and Sweden for curbing corruption and found that whistleblowers who draw attention to wrongdoing were well-protected only in Norway and the UK.
It criticized Denmark, Germany and the UK for their lack of regulation when it comes to political party financing. Twelve countries were found to have no limits on political donations by individuals, and 17 lacked codes of conduct for members of parliament.
The group also called on the European Union to set an example by adopting strict rules for its own institutions. It made wide-ranging recommendations suggesting codes of conduct for parliamentarians and compulsory registers for lobbying activities.
Transparency International is a global network. The non-governmental organization has more than 90 national chapters and is funded by membership fees and donations.
rg/ncy (AP, dpa)