French President Francois Hollande has said he wants to deepen the euro zone's economic and monetary integration, as he meets with German Chancellor Angela Merkel.
"We both want to deepen economic, monetary - and in the future political - union, to arrive at integration and solidarity," Mr Hollande said before the talks on the eve of a crucial EU summit to tackle the euro zone debt crisis.
Earlier today, German Chancellor Angela Merkel insisted in a speech to the German Bundestag that there are "no quick, no easy" solutions to Europe's debt crisis.
Mrs Merkel warned there was no "magic formula", and called for the problem to be tackled at its roots. She also said eurobonds are 'economically wrong' and 'counterproductive'.
However, Germany is sending a 'strong signal' in supporting the EU growth pact.
She reiterated that the answer to the crisis is "more Europe, not less Europe" and wants to see member states ceding more sovereignty to Brussels.
"Guarantees and controls must go together," she has insisted.
Chancellor Merkel also had praise for Ireland.
"A great deal is already under way, first successes have been noted at a number of member states, that applies especially for the program countries Ireland and Portugal who impressively prove how an approach of consolidation and structural reforms backed by solidly European support can be reached," Mrs Merkel said.
She said structural reforms for more competitiveness will remain at the top af the growth agenda.
"I'm afraid that there will be too many discussions at the Council about all kinds of ideas with regard to a common liability and too little about improved controls and structural measures."
"Apart from the fact that instruments like eurobonds, eurobill, debt repayment funds and so on are unconstitutional in Germany, I consider them economically wrong and counterproductive."
"Control and liability have to go hand in hand and joint liability can only happen when sufficient controls are in place."
Spain issues stark warning ahead of EU summit
Meanwhile, Spain can not finance itself for long at the high rates it now pays on the markets, Prime Minister Mariano Rajoy has warned.
Spain is the euro zone's fourth biggest economy.
If it is shut out of the markets it could lead to a full-blown bailout for the country with unfathomable consequences for the euro zone.
''The most urgent subject is the subject of financing," Rajoy said.
"We cannot finance ourselves for a long time at prices like those we are now paying," he said as the yield on Spanish government 10-year bonds traded at over 6.8%.
Rajoy's message served as a blunt warning to his EU partners to take actions to reassure markets and bring down the punitive rates that Spain, Italy and other fragile euro zone economies must pay to finance themselves.
"There are institutions and also financial entities that cannot access the markets. It is happening in Spain, it is happening in Italy and it is happening in other countries," he said.
Investors are deeply concerned over Spain's banking sector, which has been thrown a €100 billion rescue loan by the euro zone to fix balance sheets heavily exposed to the collapsed property sector.
But markets also are sceptical of Spain's targets of slashing the public deficit during a recession with unemployment at 24.4% - the highest in the industrialised world. That recession is deepening, the Bank of Spain warned.
After economic output shrank by 0.3% in the last quarter of 2011 and again in the first quarter of 2012, latest data showed further contraction in the second quarter "at a more intense pace", it said.
Investors fear Spain, whose public debt would actually increase because of the banking loan, could be forced to seek a state bailout, going the same way as Ireland, Greece and Portugal before it.
But Spain's economy is twice the size of those three euro zone victims combined, and if it falls many analysts fear the eurozone itself would be in peril. Even the IMF has said it doubts Spain can meet its goal of slashing the deficit to from 8.9% of economic output last year to 5.3% this year and 3% in 2013.
Rajoy said he would press his European partners to agree to "greater European integration," including for fiscal and banking union among the euro zone partners.
With Cyprus the fifth member of the 17-nation euro zone to seek a bailout, Europe's politicians have engaged in a flurry of shuttle diplomacy to thrash out a solution, culminating in Merkel's with French President Francois Hollande later today.
The summit is likely to agree on a "growth pact" with measures worth around €130 billion as well as a plan towards closer union that will hand the EU the final say over national budgets in the euro zone as well as a banking union.
Rajoy's warning could also be directed at the European Central Bank, which has intervened on bond markets before when Spanish and Italian rates reached such unsustainable levels, but has stood on the sidelines for months. The ECB has said it is up to EU governments to fix the root problems of fiscal controls.
Europe's future is at stake: bank lobby chief
The future of the eurozone and of Europe as a whole are at stake in the debt crisis, the head of the global bank lobby IIF has warned in an interview.
In remarks made to the weekly Die Zeit for publication on Thursday, IIF chief Charles Dallara said: "I believe - and this is no exaggeration - that it's not only the future of the euro which is at stake, but the future of Europe."
As a consequence, the upcoming summit in Brussels on Thursday and Friday "is perhaps the most important since the foundation of the EU," Mr Dallara said.
"It's about winning back the trust and confidence of long-term investors such as pension funds and insurers. And I'm afraid they will only allow themselves to be convinced by comprehensive solutions," he said.
Europe was refusing to tap into its joint strengths, the banking chief argued.
"That's why many of us argue that a communitisation of fiscal policy would make sense," Mr Dallara argued, in comments published in German.
Against this background, "I don't think Germany is the biggest problem. The Germans argue - and I can fully understand them - that the euro countries must surrender their sovereignty, because that is the only way to implement budget discipline in a fiscal union," he continued.
Nevertheless, on this point in particular the French were "very reticent," he observed.
"Everyone is going to have make compromises," he said.
Asked about Greece, the banking chief suggested it should be given more time to bring down its deficit.
"But that doesn't mean that aid should be given without any conditions. On the contrary, more speed is necessary in the area of structural reforms," he said.
He warned against the consequences of a possible Greek exit from the euro.
"The question isn't: shouldn't I have married. But: how much will a divorce cost," Mr Dallara said.
"If Europeans don't want to risk three or four years of recession and political turmoil, then they shouldn't play with fire," he warned.
