Germany and France have proposed a competitiveness pact for Europe as EU leaders discussed strengthening a euro zone rescue fund.
The two countries - the driving forces behind euro zone policy - set out a wish-list of measures they want euro zone and other countries to sign up to. These include limits on debt levels written into national laws, a higher retirement age, the abolition of wages indexed to inflation, and a minimum corporate tax rate.
'Germany and France will make it very obvious that we intend to defend the euro as a currency... we also want to defend it as a political project,' German Chancellor Angela Merkel told a joint news conference with French President Nicolas Sarkozy just before a presentation to EU leaders.
'We want to send out a clear message, that as the EU, we intend to grow together. What we want to establish is a pact for competitiveness,' she said.
The two biggest euro zone economies want the pact to be part of a 'comprehensive package' that leaders agree in March, when they hope to agree a series of measures to help draw a line under the euro zone's year-long sovereign debt crisis.
The package is to include changes to the European Financial Stability Facility, the €440 billion bail-out fund agreed last May, to increase its effective lending capacity and give it more flexibility on how to use its money.
EU diplomats said no major decisions would be taken today as market pressure on debt of Greece, Ireland, Portugal or Spain has eased. But officials understand that failure to agree on concrete measures before the next scheduled summit on March 24-25 could reignite the conflagration in the markets.
Strengthening the EFSF has been the focus of discussion for months, since it became clear its effective lending capacity was only about €250 billion, not €440 billion, due to guarantees built into the fund to maintain its triple-A credit rating.
Given its lending limitations, there are concerns that if Portugal and Spain were both to end up needing a bail-out, the EFSF would not have sufficient funds.
European Central Bank President Jean-Claude Trichet, who held talks with EU leaders over lunch, is among those calling for the EFSF to be enlarged and made more flexible, so that it is not just a bail-out lender of last resort.
The EFSF is the chief weapon in the EU's arsenal, but deep disagreement remains over how it should be strengthened, with Germany determined to secure stricter budgetary commitments from other euro zone members and reforms boosting competitiveness in exchange for agreeing amendments to the fund.
Some of the competitiveness reforms proposed by France and Germany met with immediate resistance.
'I don't think it's possible for the European Union to regulate the pension age because there are large differences in the individual countries,' Austrian Chancellor Werner Faymann said. 'I don't think it's right to interfere in wage negotiations, like some have demanded.'
Meanwhile, President Sarkozy also said a special summit of euro zone leaders would be held in March.
Europe bids to shake off foreign energy dependency
European leaders have launched a trillion-euro bid to slash dependency on Middle East oil and Russian gas, clearing the way to place nuclear power at the centre of 21st century needs.
At a summit in Brussels, the EU moved to reclaim control over energy supply for the rest of the century with reforms designed to unlock private investment.
The EU is the world's largest regional energy market - with 500 million people and 20 million companies.
Governments committed to a broad sweep of market reforms, linking national and regional electricity grids and gas pipelines by 2014 to allow power to circulate freely and cheaply, from those who produce it and have surpluses to those who don't and need it.
'No EU member state should remain isolated from the European gas and electricity networks after 2015 or see its energy security jeopardised by lack of the appropriate connections,' read summit conclusions whose adoption was announced by EU president Herman Van Rompuy on Twitter.
'Beyond the management of today's crisis, we're also laying the ground for a sustainable and job-creating growth,' Van Rompuy tweeted.
Island states Cyprus and Malta, as well as Baltic countries whose infrastructure remains tied to the former Soviet Union, feared their needs may be considered too insignificant for the big energy players to invest in costly transmission networks.
But the EU agreed that pooled public money could underpin completion of this so-called 'supergrid' - although ballpark sums will not be produced until the summer.
Initial European Commission estimates suggested that some €2.5 billion could be diverted from unspent EU budgets.
While one EU diplomat said it was 'doubtful' that Britain would back such an approach, Prime Minister David Cameron was comfortable with allowing 'some limited public finance to leverage private funding', as the summit conclusions specified, provided it comes from cuts elsewhere in the EU budget. The network development cost over the remainder of the decade is tipped to exceed €200 billion.
The other big change, at the instigation of France but firmly backed by the government in London, was to reposition domestically-produced nuclear energy at the heart of the EU's long-term supplies.
In a carefully-worded shift in emphasis, alongside investment in renewable energy technologies, EU states will also promote 'safe and sustainable low-carbon technologies' - this including nuclear - under climate action goals.
