Merkel Seeks Political Union in ‘New Europe’ to End Crisis

German Chancellor Angela Merkel called for an overhaul of the European Union, advocating closer political ties and tighter budget rules, in her most explicit prescription for ending the debt crisis.

Speaking to her Christian Democratic Union party’s annual congress in the eastern German city of Leipzig today, Merkel said leaders must create a “new Europe” by deepening ties in the 27-nation EU. At the same time, she repeated Germany’s rejection of jointly sold euro bonds.

“The task of our generation now is to complete the economic and currency union in Europe and, step by step, create a political union,” Merkel said. “It’s time for a breakthrough to a new Europe.”

Merkel’s address marks an escalation in her rhetoric as the debt crisis that began in Greece in October 2009 sent Italian and Spanish borrowing costs to euro-era records last week and roiled French markets. After leadership changes in Italy and Greece, the chancellor is turning her attention to shaping the euro and the EU’s future.

“What she means is that either we get more Europe now or the project will die,” Ralph Brinkhaus, a CDU member of parliament’s finance committee, said in an interview. “This means that Germany must give up some sovereign rights and some party colleagues and voters may find this hard to swallow. But there’s no alternative.”

Save the EU

Merkel renewed her warning that “if the euro fails, Europe fails” and said her mission was to save the “historic” EU project.

“Big political changes are now sweeping through the euro zone, putting -- at least for now -- the many skeptical political observers to shame,” said Erik Nielsen, chief global economist at UniCredit SpA in London. In Italy, Greece and Spain, which holds elections on Nov. 20, “people want ‘more Europe,’ not less.”

Stocks and the euro declined on concern Europe will struggle to resolve its debt crisis. The Stoxx Europe 600 Index dropped 1.2 percent at noon in London, and futures on the Standard & Poor’s 500 Index lost 0.3 percent. The euro weakened 0.7 percent to $1.3653.

Italy sold all 3 billion euros ($4.1 billion) of five-year notes it offered at today’s auction after former EU Competition Commissioner Mario Monti was asked to set up a government.

“The chancellor is saying that she doesn’t want to go down in history as being responsible for the collapse of the euro,” Elmar Brok, a German CDU member of the European Parliament, said in an interview in Leipzig. “She wants to break out now and save the project. To quote the country’s first postwar chancellor Adenauer in 1952: ‘the European nation states have a past only but no future.’”