British Prime Minister David Cameron and German Chancellor Angela Merkel have acknowledged their differences over the way forward in the euro crisis.

However, the two leaders insisted that Britain and Germany will work together in a spirit of "strong friendship".

Speaking after talks in Berlin, they stressed areas of agreement over measures to improve competitiveness in European economies, hold down the EU budget and encourage member states to deal with their debts and deficits.

But they left no doubt that they have not papered the cracks over Germany's demand for treaty change to prevent a repeat of the sovereign debt crisis in the eurozone and European Commission calls for a Financial Transaction Tax, which Britain opposes.

Mr Cameron said: "It is obvious that we don't agree on every aspect of European policy, but I am clear that we can address and accommodate and deal with those differences.

Ms Merkel said that Germany wants a "limited treaty change" to ensure that eurozone members stick to their commitments under the Stability and Growth Pact in future.

This process would not involve countries such as Britain, which has not adopted the single currency.

Germany is hoping that the upcoming summit of the European Council on 9 December will agree measures to amend EU treaties.

Mr Cameron said he and Ms Merkel had agreed that "a strong, successful and sustainable euro is in all our interests".

"We need this crisis to be resolved. Britain, like Germany, has a big national interest in this crisis being resolved," he said.

Germany's Foreign Minister Guido Westerwelle has said the ECB should not print money to help ease the eurozone crisis.

In an article for the Financial Times, Mr Westerwelle argued that this would offer only short-term relief and could boost inflation and dissipate reform.

While he conceded that the measure might bring temporary relief, he insisted it would be a "momentous mistake" in the long run.

European shares ended at a six-week closing low after Chancellor Merkel's comments cooled market hopes that Europe's largest economy would back monetary measures to tackle the euro zone debt crisis.

London's FTSE ended down 1.1% at 5,363. In Paris, the CAC lost 0.4% to 2,997 and in Frankfurt the DAX shed 0.9% to 5,800.

The German-Spanish borrowing rate gap widened to a record five percentage points as the cost of Spain's borrowing continues to hover just under the key 7% seen as unsustainable.

Italian govt announces new reforms

Meanwhile, Italy's new government announced far-reaching reforms in response to the crisis that yesterday pushed borrowing costs for France and Spain sharply higher, and brought tens of thousands of Greeks onto the streets of Athens.

New Italian Prime Minister Mario Monti outlined a raft of policies including pension and labour market reform, a crackdown on tax evasion and changes to the tax system in his maiden speech to parliament.

He later spoke to French President Nicolas Sarkozy and the German Chancellor, who all agreed on the need to accelerate reforms, according to a joint statement from the three leaders.

With Italy's borrowing costs now at unsustainable levels, Mr Monti will have to work fast to calm financial markets, given that Italy needs to refinance some €200bn of bonds by the end of April.

Greece, meanwhile, is to present a new austerity budget for approval in parliament today.

It comes as the interim government prepares for talks with international creditors on a bankruptcy-saving debt deal.

Finance Minister Evangelos Venizelos will table the blueprint as auditors from the European Union, the European Central Bank and the International Monetary Fund arrive in the Greek capital for negotiations on a rescue agreement brokered by the eurozone last month.