France and Germany have proposed a European "competitiveness pact" aimed at eliminating policy differences that have weakened the 17-nation eurozone.

France and Germany have proposed a European "competitiveness pact"
aimed at eliminating policy differences that have weakened the
17-nation eurozone.

The pact could mean eurozone governments following Germany's example
by making it a constitutional violation to exceed limits on national
debt.

German Chancellor Angela Merkel told other EU leaders that the euro
must be defended as a political project.

The new pact could also mean more countries raising the retirement age.

Under the plan, the practice of index-linking salary increases to
inflation - a custom in Belgium and Portugal - would also be scrapped.

Plea for convergence
"What we want to establish is a pact for competitiveness, and in so
doing we want to make it very clear that we intend to grow together
more closely on a political level," Mrs Merkel said at a joint news
conference with French President Nicolas Sarkozy.

"We want to take the best practices as a benchmark, and in order to
achieve that, we want to agree on particular measures."

Mr Sarkozy also called for more convergence and integration of
European economies.

The gulf in economic performance across the eurozone is believed to
have undermined confidence in the euro, with German exports surging
ahead while Spain languishes in the doldrums with record unemployment.

The eurozone initiative came at a Brussels summit that was intended to
focus on energy and innovation.

The energy discussions resulted in an EU action plan aimed at
developing an integrated, single European energy market and
modernising the energy infrastructure.

Market pressure eases
EU leaders sought to underline again their commitment to the euro,
following emergency bail-outs of Greece and the Irish Republic last
year.

In the last few weeks, interest rates on the debts of governments in
difficulty, such as Spain and Portugal, have come down.

That is a sign that lenders are more confident that they will be repaid.

The eurozone governments are having a broader discussion about ways to
strengthen the 440bn-euro (£374bn; $605bn) bail-out fund - called the
European Financial Stability Facility (EFSF) - which was set up last
May.

The BBC's Europe correspondent Chris Morris says the Franco-German
move lays bare a flaw at the heart of the euro project - that it
created monetary union without economic union.

Countries with the same currency were allowed to pursue very different
economic policies.