* Merkel insists treaty change needed to tackle euro crisis
* Cameron vows to enhance UK interests in any treaty change
* Sources say Merkel won't oppose stepped-up ECB bond-buying
* Energy exec says many CEOs working on post-euro scenarios
By Catherine Bremer and Stephen Brown
PARIS/BERLIN, Dec 2 British Prime Minister
David Cameron threatened on Friday to obstruct a Franco-German
drive for swift change to the European Union's treaty, a sign of
the difficulty leaders will face transforming Europe to to save
France and Germany are reaching a consensus that euro zone
economies need to be bound more closely together if the single
currency is to survive, which could mean changing the EU treaty
to give Brussels powers to punish spendthrift euro states.
Austrian Chancellor Werner Faymann said there was a danger
that the euro zone bloc would split up unless it implemented new
rules and stuck to them.
"When we are not able to set up and keep to more conditions
and ground rules, then many countries in the euro zone will no
longer be able to pay the very high rates for sovereign bonds,"
he told the daily Krone.
"The next effect will be that you won't find anyone to buy
them. Then the euro zone has to break up because of this.... it
is a very real danger."
After talks with French President Nicolas Sarkozy, Cameron
said he was not convinced treaty change was needed to reinforce
the single currency zone, which Britain has refused to join. If
the 27-nation bloc's charter were reopened at a crunch summit on
Dec. 9, he would have his own agenda.
The British leader said euro zone institutions such as the
European Central Bank needed to "get behind the currency" to
convince markets that it had the required firepower, and member
states had to make their economies more competitive.
"Neither of those things require treaty change, but if there
is treaty change I will make sure that we further protect and
enhance Britain's interests," he told reporters. There was no
immediate comment from Sarkozy's office.
Cameron faces pressure from Eurosceptics in his Conservative
party to loosen Britain's ties with the EU and secure guarantees
that any move towards fiscal union on the continent does not
harm the interests of the City of London financial centre.
Sarkozy tried to persuade him to allow stricter budget
discipline procedures for the euro zone without insisting on
returning powers over social and judicial affairs from Brussels
to London or seeking a veto right over EU financial regulation.
German Chancellor Angela Merkel called earlier for rapid but
limited treaty change to remedy what she sees as the root causes
of Europe's raging sovereign debt crisis, warning that Europeans
faced a "marathon" to regain lost credibility.
Outlining a long-term approach to tighter fiscal integration
in the single currency area, with tougher budget discipline, she
dismissed quick fixes such as massive U.S.-style money printing
by the European Central Bank or issuing joint euro zone bonds.
"Resolving the sovereign debt crisis is a process, and this
process will take years," Merkel told parliament, vowing to
defend the euro, which she said was stronger than Germany's
The chancellor travels to Paris on Monday to outline joint
proposals with Sarkozy for treaty changes to create coercive
powers to reject national budgets and impose automatic sanctions
on serial deficit sinners. U.S. Treasury Secretary Timothy
Geithner will meet key leaders and central bankers Dec. 6-8 in
Europe the EU summit.
Next Friday's gathering is seen by some as make-or-break for
the euro zone after a string of half-measures agreed too late by
European leaders over nearly two years have failed to stop bond
market contagion spreading from Greece to Ireland, Portugal and
now Italy and Spain.
Sources close to Merkel said she was willing to see the ECB
step up buying of troubled euro zone countries' bonds, alongside
smart use of the bloc's rescue fund, as a bridging measure until
budget controls took hold, but she did not see it as a lasting
Her speech set the agenda for a week of intense diplomacy to
try to frame a new political deal to restore market confidence
and give the ECB grounds to act more decisively to defend the
euro and support teetering banks.
The European Central Bank has been reluctant to commit to
buying bonds in large quantities like the "quantitative easing"
carried out by the U.S. Federal Reserve and the Bank of England.
ECB executive board member Juergen Stark said a solution was
urgent but added finding it was the job of politicians.
"The lingering and expanding sovereign debt crisis must be
halted to avoid macroeconomic and financial disaster, in the
euro area and beyond," he said in a speech in New York. "No
country is immune any more to a loss of market confidence in its
World stocks and European bonds continued to gain on hopes
that euro zone leaders may be moving closer to a comprehensive
solution to the debt crisis.
But in a sign that business leaders are beginning to doubt
whether the currency will survive, the chief executive of
Austrian energy group OMV said dozens of top European
executives were working on post-euro contingency plans.
"I was recently in Paris with some other representatives of
large companies and we discussed this question," Gerhard Roiss
told reporters on Friday when asked if he had plans for a euro
breakup. About half the 45 firms present had confirmed they were
working on such scenarios.
ECB President Mario Draghi sent a crucial signal to markets
on Thursday, opening the door to more aggressive action to help
fight the euro zone's sovereign debt and banking crisis if
governments adopted a new "fiscal compact".
Sarkozy embraced German calls for a new treaty tightening
fiscal discipline in a policy speech on Thursday, but unlike
Merkel he made no mention of greater powers for the European
Commission and European Court of Justice.
Instead, the French leader, struggling to win re-election
next May, called for an "intergovernmental" Europe in which the
presidents and prime ministers of euro zone countries would be
the ultimate arbiters over national budgets.
His socialist opponents denounced him for advocating an
"austerity treaty" dictated by Germany. Merkel went out of her
way to rebut such accusations, telling the Bundestag it was
"misleading" to suggest Germans were trying to dominate Europe.
The president of the European Parliament, Jerzy Buzek of
Poland, said treaty change could be "dangerous" because Europe's
citizens were unlikely to warm to the idea.
EU diplomats said Paris and Berlin hoped to find agreement
among all 27 member states for limited treaty amendments rather
than having to take the more divisive route of drafting a
separate blueprint for the 17 euro zone states or fewer.
German officials praised the conservative Sarkozy's courage
in telling voters that France would have to overhaul its social
model and cut public spending.
On the markets, German 10-year Bunds outperformed safe-haven
U.S. Treasuries and British gilts as investors saw prospects of
an EU summit deal and ECB action to ease funding for
cash-starved banks and to counter a looming recession in Europe.
Italy's 10-year bond yield was down to 6.65 percent, well
below the danger levels close to 8 percent they hit last week,
which analysts said could make it impossible for Rome to
refinance its debt next year. Spain's 10-year borrowing cost
tumbled to 5.68 percent.
Sentiment has turned more positive since the world's major
central banks took emergency joint action on Wednesday to
provide cheaper dollar funding for European banks, a move which
suggested they feared a funding crunch was imminent.
A key measure of dollar funding stress felt by euro zone
banks, the three-month euro/dollar cross currency basis swap
, has narrowed by 30 basis points since the
coordinated central bank move to around minus 130 bps.