French president Nicolas Sarkozy and German chancellor Angela Merkel urged a quick conclusion to negotiations on a new agreement meant to enshrine tougher fiscal discipline across the European Union.
Speaking after talks in Berlin, the leaders said they were making progress on a "fiscal compact" for closer convergence on economic policy in Europe to avoid future debt crises.
The German leader said negotiations were “progressing well”, and the pact could be signed as early as the end of this month, and at the beginning of March at the latest.
They also pledged their commitment to keeping all 17 countries including Greece in the euro zone but the meeting produced nothing substantial enough to allay market fears.
Berlin and Paris are looking at how to speed up payments into the European Stability Mechanism, the euro zone's permanent euro zone bailout scheme, which has been brought forward a year to mid-2012, Dr Merkel added.
Mr Sarkozy, who is trailing in opinion polls ahead of a two-round presidential election in April and May, is pushing aggressively for a new levy on financial transactions, or "Tobin tax".
Britain says it will veto such a tax at EU level unless it is adopted on a global scale, fearful of the impact in the City of London financial centre. The issue could split the European Union at a summit planned for January 30th.
Mr Sarkozy vowed last week that France would push ahead with the tax unilaterally if other Europeans dither. "If we don't set the example, it will not be done," he said.
"We have no doubt we are going to start a trend in the euro zone for everyone to adopt this tax, which is exactly what is needed," he said.
Dr Merkel took a characteristically more cautious approach, saying she had long favoured such a tax which would ideally be adopted by all 27 European Union members. But she acknowledged differences within her government on the issue and said finance ministers should deliver a report on it by March at the latest.
Dr Merkel and Mr Sarkozy discussed how to boost growth and jobs against an unfavourable backdrop of harsh austerity and mounting funding tensions in the banking sector.
French banks may be forced to move a large part of their operations abroad if France went ahead unilaterally with a proposed "Tobin" tax on financial transactions, the French Bank Federation said. Describing such a tax as inefficient and counter-productive, the FBF said it would be a painful handicap for the French economy. "Such a tax would by its nature push up the cost of financial transactions ... forcing, in part, providers to outsource a large part of the operations that are currently done in Paris to other financial centres," the FBF said.
Meanwhile, Dr Merkel warned Greece it would not be possible to give further aid without rapid progress on its second rescue package, including a voluntary write-down on Greek debt held by private creditors.
"We must see progress on the voluntary restructuring of Greek debt," Dr Merkel told a joint news conference with Mr Sarkozy in Berlin.
"From our point of view, the second Greek aid package including this restructuring, must be in place quickly. Otherwise it won't be possible to pay out the next tranche for Greece."
Dr Merkel said she would talk about Greece with International Monetary Fund chief Christine Lagarde in Berlin tomorrow.
She told reporters that the goal was to avoid any country leaving the euro zone. "Our intention is that no country must leave the euro area," she said, adding Greece must "implement its obligations toward the troika" of the International Monetary Fund, European Central Bank and European Commission.
Reuters/Bloomberg