Italy sides with Germany against eurobonds

"The commission made a lot of proposals yesterday about budget discipline and we largely agree on that," Monti told reporters in Strasbourg after meeting with French leader Nicolas Sarkozy and German Chancellor Angela Merkel, explaining that such a move chips away at policy competition between states.

"I just think that eurobonds, or stability bonds, whatever you want to call them, produce a leveling of the different competitive situations which are expressed via interest rates, which gives the wrong signal, as different interest rates are an indication of where work still needs to be done."

Merkel and Sarkozy have frequently met since the crisis separately from other EU members only to emerge hours later to present their vision for steps that should be taken.

It was the first time an Italian leader had been welcomed into the Franco-German tent, although little emerged on Thursday apart from an announcement from Sarkozy that Paris and Berlin will propose their own modifications to the EU treaties.

"We are working on proposals [for changes] which have advanced a great deal," he said. The proposals are to be presented to the rest of the bloc at its winter summit on 9 December.

Hopes on France's part that the meeting would resolve the core dispute between Paris and Berlin, the role of the European Central Bank in the crisis, were unfulfilled.

The three instead put out a boilerplate statement of their continued support for the bank's independence.

"We all stated our confidence in the European Central Bank and its leaders and stated that in respect of the independence of this essential institution we must refrain from making positive or negative demands of it," the French president said.

"Germany has a history, a tradition and a culture. France has another. We're trying to understand and converge toward the same point ... Ms Merkel explains her worries to me, sometimes at length, and I tell her mine, and then, given the weight of history between our countries, we converge. I try to understand Germany's red lines and France's red lines."

Sarkozy was reportedly "irritated" at Merkel's unwillingness to do discuss the issue, according to Le Monde, the French daily, despite making nice in public.

France had expected the core issue to be placed firmly on the table. The same day, French foreign minister Alain Juppe had said the ECB must become the lender of last resort.

"It's urgent. It will be discussed this very day in Strasbourg," he said on France Inter radio.

For his part, eurosceptic Czech President Vaclav Klaus in a new book on EU integration which he aims to publish in all the main EU languages, has lampooned the Merkel-Sarkozy duo.

"Hardly a week goes by without a Sarkozy-Merkel meeting, in which - for us, but without us - with solemn faces and professionally-trained smiles, they make decisions on the future of our continent," his book said.