He said: "I want a European constitutional treaty that creates a federal Europe".
Schulz' Social Democrats have become Chancellor Angela Merkel's last viable option to form a stable government after her talks with smaller parties collapsed.
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The European Commission - the executive arm of the EU - said Hungary had repeatedly failed to answer its concerns over both cases. Hungary adopted a law in April that set new requirements for non-EU universities based in the country.
The treaty would then be presented to all member states for ratification, with those that reject it automatically leaving the bloc, Schulz proposed in a speech at a Berlin meeting of some 600 delegates.
He suggested a target year of 2025, one century after the SPD first spoke of a future "United States of Europe".
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"The SPD is needed for a just and innovative Europe", he said. 'It is the only chance we have to keep up with the other great regions of the world'.
"France is making proposals and Germany is not engaging".
With that in mind, Martin Schulz told a party congress that he wants the European Union to agree to a new constitutional treaty which creates a federal Europe, which can act together in policy in areas including domestic and foreign security, tax and monetary affairs and asylum and global development.
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The Foreign Secretary will say the West needs to realise that hundreds of millions of Muslims are on its side in the battle against terrorism.
Schulz, a former head of the European Parliament, said a pre-condition for entering such talks would be "an about-face in European policy". "Our country can not afford another four years of European policy à la [former conservative Finance Minister] Wolfgang Schäuble".