Germany's Merkel Urges Euro Fiscal Union to tackle debt problem

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In her speech, Mrs Merkel promised "concrete steps towards a fiscal union" - in effect close integration of the tax-and-spend polices of individual eurozone countries, with Brussels imposing penalties on members that break the rules.

"We need budget discipline and an effective crisis management mechanism," she said. "So we need to change the treaties or create new treaties."

The German government has been pressing for changes to establish powers to veto national budgets in the eurozone that breach agreed rules.

"We have started a new phase in European integration," Mrs Merkel said.