Germany, France Fight for Euro Survival

Euro zone economies need to be bound more closely together if the single currency is to survive.

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PARIS/BERLIN (Reuters) — British Prime Minister David Cameron threatened on Friday to obstruct a Franco-German drive for swift change to the European Union's treaty, a sign of the difficulty leaders will face transforming Europe to save the euro.

France and Germany are reaching a consensus that euro zone economies need to be bound more closely together if the single currency is to survive, which could mean changing the EU treaty to give Brussels powers to punish spendthrift euro states.

Austrian Chancellor Werner Faymann said there was a danger that the euro zone bloc would split up unless it implemented new rules and stuck to them.

"When we are not able to set up and keep to more conditions and ground rules, then many countries in the euro zone will no longer be able to pay the very high rates for sovereign bonds," he told the daily Krone.

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"The next effect will be that you won't find anyone to buy them. Then the euro zone has to break up because of this.... it is a very real danger."

After talks with French President Nicolas Sarkozy, Cameron said he was not convinced treaty change was needed to reinforce the single currency zone, which Britain has refused to join. If the 27-nation bloc's charter were reopened at a crunch summit on December 9, he would have his own agenda.

The British leader said euro zone institutions such as the European Central Bank needed to "get behind the currency" to convince markets that it had the required firepower, and member states had to make their economies more competitive.

"Neither of those things require treaty change, but if there is treaty change I will make sure that we further protect and enhance Britain's interests," he told reporters. There was no immediate comment from Sarkozy's office.

Cameron faces pressure from Eurosceptics in his Conservative party to loosen Britain's ties with the EU and secure guarantees that any move towards fiscal union on the continent does not harm the interests of the City of London financial centre.

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Sarkozy tried to persuade him to allow stricter budget discipline procedures for the euro zone without insisting on returning powers over social and judicial affairs from Brussels to London or seeking a veto right over EU financial regulation.

German Chancellor Angela Merkel called earlier for rapid but limited treaty change to remedy what she sees as the root causes of Europe's raging sovereign debt crisis, warning that Europeans faced a "marathon" to regain lost credibility.

Outlining a long-term approach to tighter fiscal integration in the single currency area, with tougher budget discipline, she dismissed quick fixes such as massive U.S.-style money printing by the European Central Bank or issuing joint euro zone bonds.

"Resolving the sovereign debt crisis is a process, and this process will take years," Merkel told parliament, vowing to defend the euro, which she said was stronger than Germany's former deutschemark.

The chancellor travels to Paris on Monday to outline joint proposals with Sarkozy for treaty changes to create coercive powers to reject national budgets and impose automatic sanctions on serial deficit sinners. U.S. Treasury Secretary Timothy Geithner will meet key leaders and central bankers December 6-8 in Europe the EU summit.

[Europe Debt Crisis Could Whack Obama.]

Next Friday's gathering is seen by some as make-or-break for the euro zone after a string of half-measures agreed too late by European leaders over nearly two years have failed to stop bond market contagion spreading from Greece to Ireland, Portugal and now Italy and Spain.

Sources close to Merkel said she was willing to see the ECB step up buying of troubled euro zone countries' bonds, alongside smart use of the bloc's rescue fund, as a bridging measure until budget controls took hold, but she did not see it as a lasting solution.

Her speech set the agenda for a week of intense diplomacy to try to frame a new political deal to restore market confidence and give the ECB grounds to act more decisively to defend the euro and support teetering banks.