“We need more Europe, we need not only a monetary union, but we also need a so-called fiscal union, in other words more joint budget policy,” Merkel told ARD on Thursday (7 June).
“And we need most of all a political union – that means we need to gradually give competencies to Europe and give Europe control,” she added.
European Council President Herman Van Rompuy, who chairs EU summits, said he would only present "building blocks" on closer euro zone fiscal and banking union at a meeting of EU heads of state on 28 June.
But the German Chancellor doused expectations that the June summit will produce a breakthrough, saying progress towards a fiscal and banking union would take substantially longer.
"I don't believe that there will be one single summit that will decide on a big bang," Merkel told ARD. "But what we have been doing for some time, and on which a working plan will certainly be presented in June, is to say we need more Europe," she said, adding: "Whoever is in a currency union will have to move closer together."
The German Chancellor also admitted that this would require different paces of integration as some EU countries like Britain will refuse to participate.
"We have to be open to make it possible for everyone to participate. But we cannot stand still because some do not want to go with us," Merkel said.
Detailed proposals in October
Most EU officials see the process of integration taking five to 10 years at best, much longer than the view of the markets, although economists also argue that agreeing steps towards closer union will itself help boost market sentiment.
Speaking to think tanks in Brussels, Van Rompuy said the euro zone was fighting for survival. "The rest of the world is looking at us. They are not asking for new debates, they are asking for decisions," he said.
According to Van Rompuy, the aim is to have detailed proposals in October.
European Commission President José Manuel Barroso has said he will propose a roadmap and "calendar" for more European integration at the June summit, without discarding the possibility of a treaty change aimed at injecting more federalism into the Union.
Franco-German engine jammed
As the EU's biggest economy and largest contributor, Germany holds the key to greater integration within the bloc, together with its long-time partner France.
But Paris appears hesitant to take the federalist leap that Germany is asking for, pushing instead for more immediate steps to boost economic growth at European level and pooling euro zone debt by issuing jointly backed eurobonds.
During his first visit to Brussels on 29 May, Bernard Cazeneuve, France's new Europe minister, refused to give specific conditions under which France could agree to additional sovereignty transfers to Brussels.
"If in this perspective [of eurobonds] the discussion focuses on greater modes of integration, these topics will be addressed in due time," Cazeneuve said in response to a question from EurActiv.
"We will not indicate now what the steps are when those steps are part of the negotiation. All this must be made by doing."
Rift with Britain
Merkel's push for greater EU integration also underscored a growing rift with non-euro member Britain, which said bluntly on Thursday that it would not take any part in a euro zone banking union as envisaged by the European Central Bank and the European Commission.
Finance minister George Osborne told BBC radio: "There is no way that Britain is going to be part of any euro zone banking union.
"I think Britain will require certain safeguards if there is a full-blown banking union."
His comments, reiterated more softly by Cameron in Berlin, highlight the potential complexity of EU negotiations on the issue, since London is the euro zone's main financial centre and could veto deeper banking integration.