German Chancellor Merkel says Britain a key EU partner

media captionGerman Chancellor Angela Merkel says Britain's role in the EU is secure

Chancellor Angela Merkel has told German MPs that the UK will remain a strong EU partner, despite its decision not to sign up to an EU summit deal.

Addressing the Bundestag (parliament), she said she very much regretted that UK PM David Cameron had been "unable to join us" on the path to fiscal union.

Last week 26 of the 27 members of the European Union backed new fiscal rules, with only the UK abstaining.

Britain said the deal failed to provide safeguards for its financial sector.

Mrs Merkel was speaking after the euro fell below $1.30 and £0.84 - an 11-month low - amid continuing fears over the eurozone's future.

The deal was prompted by debt crises in several eurozone countries, and is intended to tighten rules to prevent member states running up further debts in future.

The only way to do this is to write budget prudence into the constitution of each member country, Germany says.

In a separate development, Christian Lindner resigned as general secretary of the Free Democratic Party, Mrs Merkel's coalition partner, amid dismal poll ratings and wrangling over an internal referendum on the eurozone deal.

'Intermediate contract'

The BBC's Stephen Evans in Berlin says the chancellor gave few details that might satisfy the financial markets in the immediate crisis, but she indicated that the close integration of a core of the EU was now her strong aim.

The chancellor said the countries had decided to have an "intermediate contract".

"I am convinced that if we have the necessary patience and endurance, if we do not let reversals get us down, if we consistently move towards a fiscal and stability union, if we actually complete the economic and currency union... then what I have always stated as our goal since the beginning of the crisis will come to pass," she said.

There would be automatic penalties on countries that broke spending rules, she said, adding that the EU had to tackle the task of harmonising legislations of different countries more closely.

"I regret that the UK has not been able to join us on this journey," she said.

"But I also believe it's an important partner in the European Union... Great Britain has its own vital interest that the eurozone will overcome its own financial crisis."

She said a stronger and more stable Europe would emerge from the crisis.

But there are fears that a budget pact will still not be enough to prevent more countries from seeking a bailout.

Greece, Ireland and Portugal had to be bailed out after they could no longer afford interest rates charged by lenders.

Rates for Italy and Spain are also reaching unsustainable levels.

The EU does not currently have a pot of cash big enough to rescue larger EU countries requiring bailouts, but the deal envisaged signatories providing funds of up to 200bn euros for the International Monetary Fund to help tackle the crisis.