German Chancellor Angela Merkel has rejected any quick-fix ideas to try to resolve the European financial crisis and warned that a solution will take years.
In a key address to the German parliament - ahead of next week's summit of EU leaders - she said a new treaty was needed to establish a fiscal union in Europe and impose rigorous budget oversight of euro zone nations.
It is believed if such a package can be agreed at next week's summit, it may enable the European Central Bank to act and ease the immediate crisis.
The themes contained in the Chancellor's speech this morning, echo that of French President Nicolas Sarkozy's address last night.
Mr Sarkozy spoke about how France was fighting with Germany for a new treaty involving more discipline leading to true economic government.
Today Dr Merkel told her parliament: "We are not only talking about a fiscal union, we are beginning to create it."
Merkel said the last gruelling months, packed with market turmoil, the threat of Greek default on its towering debts and political strife in the European Union, had focused minds.
"Anyone who had said a few months ago that we, at the end of 2011, would be taking very serious and concrete steps toward a European stability union, a European fiscal union, toward introducing (budgetary) intervention in Europe would have been considered crazy," she said.
"Now these items are on the agenda, we are on the verge of it, there are still difficulties to be surmounted but their necessity is now widely recognised," she said. Merkel was laying out what she said were the goals of Germany, the EU's top economy, ahead of a crunch summit in Brussels next week.
She will hold talks with French President Nicolas Sarkozy on Monday to hammer out a common position ahead of the gathering. In a landmark speech yesterday in front of 5,000 cheering supporters, Sarkozy warned that the developed world was entering a "new economic cycle" dominated by austerity, heralding tough times ahead for jobs and business.
He said that in Europe this would require a new political and budgetary consensus that would win back the confidence of the markets. "France is fighting with Germany for a new treaty. More discipline, more solidarity, more responsibility - true economic government" he said, urging members to adopt a "Golden Rule" obliging them to balance their budgets.
Merkel said the "fiscal union" should lead to a new "European debt brake" to stop countries from spending their way to the brink of insolvency. "We must strengthen the foundations of the economic and currency union," she said.
Merkel said there was "no alternative to treaty change" which would codify budgetary discipline in the euro zone. "Rules must be respected. Respect for them must be supervised. Their violation must have consequences," she said.
But Merkel once again ruled out eurobonds, a proposal to pool European debt to keep a lid on borrowing costs for member states, which European Commission chief Jose Manuel Barroso formally tabled last week.
"Whoever has not understood that eurobonds cannot be the solution to the crisis has not understood the nature of the crisis," she said.
Sarkozy meets Cameron on EU debt crisis
French President Nicolas Sarkozy held emergency talks with British Prime Minister David Cameron as France and Germany try to drum up support for a new EU treaty to enforce budget discipline.
Mr Cameron joined Mr Sarkozy for a working lunch at the Elysee Palace for around an hour before heading back to London.
Afterwards he appeared resigned to the idea that EU treaties would have to change.
"If there is treaty change, then I will make sure that we further protect and enhance Britain's interests," he said.
Britain is not part of the 17-nation bloc that uses the single currency but is concerned that a eurozone implosion would damage its own economy, and fears being sidelined by reinforced Franco-German ties at the heart of the union.
Cameron and Sarkozy worked well together during NATO's military mission in Libya, but have reportedly clashed in bitter terms over European issues, as Britain seeks to protect its huge financial sector from EU regulation.
But Britain has faced criticism from European nations and from Sarkozy in particular for carping from the sidelines while offering no real solutions.
Ireland keeping corporation tax rate - Gilmore
Tánaiste has insisted that Ireland is keeping its existing corporation tax rate.
Eamon Gilmore was responding to comments made by the French President Nicolas Sarkozy, which were seen as a criticism of Ireland's low rate of 12.5%.
Mr Gilmore said there was nothing new in what President Sarkozy was saying and it did not change the Government's position.
The Labour leader was speaking to the media at the opening of a new Supervalu store in Dun Laoghaire in Co Dublin which will see the creation of 70 new jobs.
