German Chancellor Angela Merkel has revealed her long-term vision for Europe, saying the debt crisis is forcing eurozone countries towards a federalist model and placing her on a collision course with the more eurosceptic UK.
In an interview with six major European newspapers, Merkel said closer integration was needed to resolve the EU debt crisis.
"My vision is political union, because Europe has to follow its own path. We need to get closer step by step, in all policy areas," Merkel said.
The chancellor's European vision was made public ahead of a summit on Monday where EU leaders are expected to finalise a new treaty aimed at tightening fiscal discipline and deepening economic integration in the eurozone.
Without mentioning federalism, Merkel described a new architecture for Europe where EU institutions have the last word over member states, placing her on a collision course with British Prime Minister David Cameron, who has vetoed attempts to transfer more powers to Brussels.
"In the course a long process, we will transfer more powers to the Commission, which will then work as a European government for European competencies," Merkel said.
"This implies a strong parliament. The Council, which brings together heads of government, will form the second chamber. Finally, we have the European Court of Justice as the supreme court. This could be the future shape of the European political union in a while and, as I said, after many steps."
Asked about the position of Britain, Merkel said Germany remained committed to a dialogue with all member states, whether they are inside or outside the euro.
But at the same time, she said the crisis is forcing the 17 eurozone countries to take a step further by forging closer economic and political ties among themselves.
"Everyone will understand that the countries that have joined up in adopting a common currency should operate in a very close way," she said.
"We will be able to strengthen our common currency only if we increase our political dialogue, if we are ready to transfer more competences to Europe, step by step. … To do this, we need to give institutions more control rights and give them more teeth."
Eurobonds only after fiscal integration
Merkel reiterated her opposition to eurobonds as a way of addressing the short-term effects of the crisis. However, she remained open to the idea in the longer term, at the conclusion of a process of deeper economic and political integration.
"Eurobonds are not a solution for resolving the momentary crisis. We cannot think of a greater shared responsibility until we have reached a much deeper integration in Europe."
"But for deeper integration, it is necessary, for example, that the Court of Justice of the European Union monitors national budgets, and much more."
"If we were to have one day a harmonised financial and budgetary policy, other forms of cooperation and shared responsibility can then be found."
Call for structural reforms, not stimulus
Merkel said that, when it comes to growth policies, "some people still think in terms of expensive economic stimulus programmes".
The German chancellor referred to unused European regional funds, which could be mobilised to support smaller businesses, youth employment and innovation. "Germany is ready to invest in structural funds in these useful areas," she said.
But she also added that there were other ways of boosting growth, "which cost close to nothing," citing labour market rules that "should be more flexible," especially for young people.
European solidarity and national responsibility
Merkel deflected pressure to increase the eurozone's rescue fund, saying the key to reassuring markets was to restore lost trust in governments' policies. Germany's solidarity, she stressed, has to go hand in hand with a sense of national responsibility.
"If we express our solidarity, we must not however lose sight of our own responsibilities," she said, adding that the eurozone needed to tackle the root causes of the crisis by reducing economic disparities.
"It is absurd to promise more money if we do not fight the origins of the crisis. In Spain, for example, more than 40% of youth are unemployed, which is also due to the legislation."
Merkel insisted she had "a lot of respect" for efforts to make structural reforms in Spain but that Germany and other Central European states had already introduced "painful labour market reforms" which other countries could learn from.
"If we back down from these efforts, if we are only nice to each other and dilute reform projects, it is certainly a bad service we render to Europe."
"Given the billions of aid and the relief funds, we Germans must also be careful if we do not want to be exhausted one day".