Chancellor Angela Merkel called Thursday for the creation of a fund to help cash-strapped eurozone governments invest while forcing them to implement tough reforms to liberalize their economies.
She was speaking in parliament, as 27 EU leaders prepared to gather in Brussels for a summit to consider new moves for shoring up the troubled eurozone.
Rejecting calls to "mutualize" the debts of the battered governments of southern European nations, the chancellor said she would instead propose the creation of a joint "project-tied" fund which could be financed by a future financial transactions tax.
Berlin has been widely criticized for only pursuing austerity and tough economic reforms to end the crisis.
With this in mind, the chancellor's proposal appeared to concede that governments must now spend to help get their stricken economies going again.
"I propose we introduce a new element of solidarity, a fund, from which money can be obtained, for a limited time, attached to projects, because not all the countries will be able to simultaneously consolidate their budgets and make the necessary investment in the future," she said.
The fund would shore up reforms in the eurozone by imposing conditions on the governments that borrowed from it. She said such conditions would improve the competitiveness of national economies, but did not go into detail.
Past EU funds "sometimes did not help and sometimes actually encouraged the wrong developments," she said.
Merkel said that EU states which were not yet members of the 17-state eurozone could also participate in the new fund, "provided they are willing to make binding commitments to the (European) Commission on improving their competitiveness."
Eleven eurozone nations have already agreed to introduce a transactions tax, which Merkel said "could lead to more countries introducing such a tax."
Merkel poured cold water on attempts to set up a eurozone bank regulator by the start of next year, quoting the head of the European Parliament as saying the bill could not be passed by that time.
"Quality is more important than speed," she said.
"I will say this quite bluntly. Merely completing the legislation for a regulator will not be enough," she added. Direct recapitalization of foundering banks by the eurozone bailout fund could not begin until after the regulator was up and running.
The chancellor also strongly backed calls this week by her finance minister, Wolfgang Schaeuble, for the European Union's monetary affairs commission to sign off on national budgets before governments can implement them.
Berlin wanted the commissioner to have "genuine disciplinary powers over the national budgets," she said.
Accusing critics of trying to "shout down" the idea, Merkel said she was aware that many other EU nations were hostile, but "that won't change the fact that we are going to strongly advocate" it.
Merkel's main challenger at next year's general election, Peer Steinbrueck, a Social Democrat, accused her of using only one remedy, austerity and "saving, saving, saving," to end the crisis.
Steinbrueck, who is seeking to unseat her as chancellor when Germany goes to the polls in September 2013 and spoke immediately after her, also accused her of allowing members of her conservative-led coalition government to "bully Greece."
He told parliamentarians: "Germany's future is Europe and we have to invest in this future."
In her speech, Merkel slammed corruption in Greece, but said it was sincerely trying to change and would remain in the eurozone.
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