German Chancellor Angela Merkel kicked off a crunch week of talks on saving the euro by laying out a vision Friday for a “fiscal union” in Europe, ahead of a pivotal summit of EU leaders.

A day after French President Nicolas Sarkozy said that Europe needed to be “refounded” in response to a crisis that has threatened the very existence of the EU, Merkel insisted that progress had been made.

Speaking in a hotly awaited speech in the German parliament, Merkel said Europe was “on the verge” of creating what she called a “stability union” for the 17-nation eurozone, with greater budgetary discipline and control.

“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.

She said she would be holding talks with “almost everyone” in the run-up to a summit in Brussels next Friday that many commentators have dubbed the last chance to save the single currency, introduced with such euphoria a decade ago.

And she confirmed she would be heading to Paris for talks with Sarkozy on Monday to thrash out a joint Franco-German position on changing the EU founding texts ahead of the summit.

Highlighting the challenges that face Europe’s leaders, around 17,000 people demonstrated in Athens on Thursday in a bid to force the new government to abandon austerity measures.

The sixth general strike this year in Greece shut down public services and crippled train and ferry services.

Nevertheless, European stock markets rallied at the open, following Asian gains, as traders continued to be generally bullish in the wake of joint central bank action Wednesday to ease tensions in the global financial system.

And the euro held steady against the dollar and yen in Asian trade on Friday as investors breathed a sigh of relief over European bond sales that hinted at rising confidence in the region’s public debt.

But despite a sense of optimism, EU authorities should be acutely aware that the eyes of the world will be on them next Friday, one trader in Asia said.

“Investors are monitoring the EU summit next week and the monetary policy meeting by the European Central Bank before that,” said Masatoshi Sato, strategist at Mizuho Investors Securities, referring to a rate decision next Thursday.

In a landmark speech Thursday in front of 5,000 cheering supporters, Sarkozy warned that the developed world was entering a “new economic cycle” dominated by debt reduction, heralding tough times ahead for jobs and business.

“We must confront with total solidarity those who doubt the stability of the euro and speculate on its break-up,” he declared.

“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 she was heading to Brussels “with the aim of changing the EU treaty” to push through her goals, which she summed up as follows: “Rules must be respected. Respect for them must be supervised. Their violation must have consequences,” she said.

And she warned that the eurozone would go it alone if no agreement could be struck on EU treaty change, while stressing that the euro club was open to anyone who wanted to join.

Traders want to see more decisive action by the European Central Bank, stepping in to buy up the bonds of distressed eurozone nations, effectively acting as the lender of last resort as in Britain or the United States.

However, Merkel again dismissed this, stressing the ECB’s independence and insisting: “The mandate of the ECB is different to that of the United States Fed or of the Bank of England,” referring to the Federal Reserve Bank.

“It is written clearly in the treaties: the mandate is to guarantee price stability and that is exactly what the ECB is doing and … I am completely convinced of that,” she said.

She also reiterated that eurobonds, a pooling of the debt of eurozone nations, was not the solution to the crisis, saying that anyone who believed that to be the case “had not understood the nature of the crisis.”

Germany, Europe’s top economy, believes that both eurobonds and any compromising of the independence of the ECB would lead to inflation, which the central bank was set up to prevent.

Merkel said the stakes could hardly be higher, as Europe headed into a week that will likely define it for several years to come.

“Europe is in its most difficult existential test. As chancellor, I am going to do everything … to ensure that Europe comes stronger out of this test than when it went in,” she told MPs.

“Despite all the turbulence we have seen in recent times, the euro has proved itself. It is stable … the euro is much more than just a currency,” she added.

“The future of the euro is indivisibly linked with the unification of Europe.”

Source: http://www.rawstory.com/rs/2011/12/02/germany-france-push-for-fiscal-union/