President backs new euro economic body

The move raised pressure on Germany, Europe's biggest economy and chief crusader for tougher budget discipline, to accept a political forum to coordinate economic policy, made up of leaders of the 16 nations using the single currency.

"What President Van Rompuy wants is a kind of government at the level of euro zone heads of states and government, where everybody would feel a sense of responsibility. It would be more than a forum. It would entail a euro zone economic government," one EU diplomat said.

France has long pressed for a more formalised system of coordinating economic policy but the idea has been treated with scepticism by some partners, notably Germany. Berlin fears a challenge to the independence of the European Central Bank and is wary of state intervention.

However, the global financial crisis has made Germany more supportive of financial market regulation, even moving ahead with a unilateral ban on some kinds of speculative trades without the backing of EU partners.

German officials were not immediately available for comment.

Several EU diplomatic sources said Van Rompuy wanted to speed up negotiations on reforming euro zone budget rules and economic governance to clinch agreement on a deal at an EU summit on June 17.

That would require a consensus on tougher fiscal discipline rules, backed by sanctions, to avoid any repetition of Greece's massive accumulation of deficits and debt, which plunged the whole euro zone into crisis.