German Chancellor Angela Merkel endorsed a proposal for a top European Union official to be given the power to veto member governments' budgets, and suggested Thursday that the bloc could set up a new fund to finance projects in struggling countries.

Merkel addressed Germany's Parliament ahead of an EU summit starting later Thursday where leaders will debate tightening financial integration, creating a banking union and how to deal with the financial needs of Greece and Spain.

In a bid to keep European countries from overspending again in the future, Germany's finance minister argues that the EU's monetary affairs commissioner should have the power to veto budgets if they violate deficit rules.

Merkel acknowledged many nations don't want to concede to Brussels the power to intervene in budgets. However, she said her government will "continue to push for it."

"I am astonished that, no sooner does someone make a progressive proposal…the cry immediately comes that this won't work, Germany is isolated, we can't do it," she said. "This is not how we build a credible Europe."

Merkel rejects pooling countries' debts

Merkel again rejected the pooling of countries' debts, an idea favoured by struggling countries that hope to regain investor confidence to lower their borrowing costs.

But she suggested countries could make binding pledges to conduct reforms and be granted money for a limited period and for specific projects from a new fund, possibly paid for by a tax on financial transactions that Germany and 10 other countries have agreed to introduce.

Long-term proposals for overhauling the EU appear likely to play a leading role at this week's summit, with firm decisions not expected on more immediate matters.

Merkel again insisted Thursday that "quality must come before speed" as Europe works on setting up a continent-wide bank supervision system — something that many countries would like to have in place in January. Berlin says that's unrealistic.

"There are a lot of very complicated legal questions, and I am not making the issue more difficult than it actually is," Merkel said.

The German leader pointed to last week's award of the Nobel Peace Prize to the EU as a further incentive to ensure the euro's long-term future.

"This decision is so significant precisely because it comes now," she said. "It should be understood as an admonition, even more as an inducement and obligation for all of us in Europe to separate the important from the unimportant and focus on the core of the test in which we find ourselves."