Germany's Chancellor Merkel urges EU political union
German Chancellor Angela Merkel says the EU needs a political union even if it means some countries integrating faster than others.
Speaking on German TV, she called for "more Europe", including a budgetary union, saying "we need a political union first and foremost".
"Step by step we must from now on give up more competences to Europe, and allow Europe more powers of control."
However, she has resisted calls for the joint issuing of eurozone debt.
She will hold talks on Thursday with UK Prime Minister David Cameron, who has urged the 17-nation eurozone to speed up measures to build a budgetary union to shore up the embattled monetary union.
Ms Merkel's insistence on economic austerity and budget discipline has alienated many Europeans who say the policy is strangling growth and piling more debts on the struggling "periphery" countries like Greece and Spain.
Spain has to find at least 80bn euros (£65bn) to shore up its banks, which are struggling because of bad property loans.
Spain's finance minister has said the credit markets are "effectively shut" to his country, but so far Madrid has avoided asking the EU for a bailout.
On Wednesday the European Commission set out plans for a eurozone "bank union", which could make it easier for troubled eurozone banks to access EU credit.
In her TV interview Ms Merkel reiterated that "budget consolidation and growth are two sides of the same coin".
"Without solid finances, there is no growth, but solid finances alone are not enough; there are other points - above all, questions of competitiveness," she said.
Ms Merkel remains very cautious about the idea of pooling eurozone debts in "eurobonds", despite growing calls - including from the European Commission - for the eurozone to launch them.
Germany, as the strongest EU economy, wants to avoid a situation where it would end up shouldering the debt burden of weaker EU countries.
Direct bailouts of eurozone economies by the European Central Bank are banned under the "no bailout" clause in the Maastricht Treaty, which launched the single currency.
But next month the eurozone will have a new 500bn-euro rescue fund, the European Stability Mechanism (ESM), which should make it easier for countries in trouble to access credit.
UK Chancellor of the Exchequer George Osborne on Thursday ruled out British participation in an EU banking union, in a BBC interview.
"We need to make sure that the mechanisms already put in place can be activated", he said.
"The banks have been one of the weak links in all of this and the eurozone have tolerated weak, undercapitalised banks for too long."
Former UK foreign secretary Lord Owen told the BBC that, being outside the eurozone, the UK ought to remain part of a single market and let other countries develop a closer political union if they so wished.
Echoing the idea of a twin-track Europe, he said the European Union could be "the strongly integrated element" and the original European Community, which preceded the euro, could be the wider grouping for the single market. He said the UK would need a referendum to decide on its future in Europe.