Merkel: Aim is credibility for whole eurozone

German Chancellor Angela Merkel passes an EU flag in Berlin, 2 November
Image caption Mrs Merkel has talked of making a "breakthrough" in the EU's politics

Germany's goal is to stabilise the eurozone in its current form, German Chancellor Angela Merkel says.

Her comments followed an earlier report that Germany and France were discussing a radical overhaul of the EU towards a more integrated eurozone.

A senior EU official told Reuters news agency "intense consultations" had been taking place "at all levels" and that a smaller eurozone was one possibility.

But Mrs Merkel said the whole eurozone needed to restore credibility.

"We have a single goal and it is to stabilise the eurozone as it is today, to make it more competitive, to make progress in balancing budgets," she said, when asked about the possibility of debt-laden Italy leaving the bloc.

"We believe this common euro area is also capable of thoroughly winning back its credibility, that means for every single country," she said.

Greece at risk

The risk of Greece defaulting on its massive debts has triggered intense speculation about Greece becoming the first country to exit the eurozone.

France's President Nicolas Sarkozy has talked openly of a "two-speed Europe".

The BBC's Europe editor, Gavin Hewitt, says it is now clear the financial crisis in the eurozone is spurring a debate about the future of the grouping.

There are as yet no detailed plans, but the debate has prompted a stern warning from European Commission President Jose Manuel Barroso about the dangers of splitting the eurozone, our correspondent adds.

Ground rules queried

An unnamed EU official in Brussels told Reuters that "France and Germany have had intense consultations... over the last months, at all levels [about overhauling the eurozone]".

"We need to move very cautiously, but the truth is that we need to establish exactly the list of those who don't want to be part of the club and those who simply cannot be part."

Responding to the issues raised by the comments on Thursday, Mrs Merkel's spokesman Steffen Seibert denied proposing a smaller eurozone.

"The German government is most definitely not pursuing such plans," he said.

On Wednesday Mrs Merkel spoke of the need for some structural changes in the EU.

"The current situation in Europe surely is unpleasant enough to conduct a change for the better," she said.

"It is time for a breakthrough to a new Europe. A community that says, regardless of what happens in the rest of the world, that it can never again change its ground rules - that community simply can't survive."

'Not an opt-out'

But Mr Sarkozy made it clear on Tuesday that he favoured a two-speed Europe - and reiterated that allowing Greece to join the euro had been a mistake.

Referring to the further enlargement of the EU, he said: "There are 27 of us.

"Clearly, down the line... there will be 32, 33, 34 of us. No-one thinks that federalism, total integration, will be possible with 33, 34, or 35 states."

"Clearly," he added, "there will be a two-speed Europe: one speed that moves toward more integration in the eurozone and one speed for a confederation in the EU."

Mr Barroso hit back on Wednesday, warning about the economic costs of any split in the eurozone and urging Germany to show leadership.

"The euro area is not an opt-out from the EU," he said in Berlin. "In fact, all the EU should have the euro as its currency."

Around the BBC