Germany 'more pessimistic' on EU summit

(BERLIN) - Germany has recently become less hopeful of the chance of success at a critical EU summit widely seen as the last chance to save the eurozone, a government source said on Wednesday.

"I have to say ... that I am more pessimistic than I was last week on the chances of a total agreement," the senior government source said, adding that "several partners have not yet understood the gravity of the situation".

The Friday summit, starting with a dinner late on Thursday, is crucial to efforts to stop the debt contagion threatening the eurozone and salvage the single currency.

Leaders will look at ways of strengthening economic convergence, improving budgetary discipline and deepening economic union.

France and Germany have called for changes to the treaty to improve the framework of the eurozone, which is now generally seen as defective, almost 10 years after the currency was introduced.

"We need to take a decisive step towards the future structure of the eurozone ... we cannot do this with a series of small steps," the source added.

The source reiterated Germany's view that so-called eurobonds, the pooling of eurozone debt, is the wrong approach to the crisis.

Eurobonds would "increase the problems, not ease them," the source said, adding: "I don't think that anyone can serously say that eurobonds are the right answer to this crisis."

Amid concerns that the crisis could split the EU into a so-called two-speed Europe, with the non-euro countries, including Britain, left on the outside, the source said it was "indispensable" that the 17-member euro bloc come to a deal.

The new rules must be "legally binding" for at least the 17 countries but others outside the euro club are "cordially invited" to join, the source said.

Any changes to the treaty would be "limited", added the source, after British Prime Minister David Cameron vowed to use any treaty change to repatriate powers to London.

Cameron is also under pressure from the eurosceptic wing of his conservative party to hold a referendum on any treaty changes.

However, the source said that there would likely be a separate meeting of the 17 members of the eurozone during the summit.

"I think that during the event, there will be a meeting of the 17, whether that is before the summit or after the summit, I don't yet know," said the source.

The source also dismissed reports that the European Stability Mechanism (ESM), a bailout fund designed to replace the current EFSF aid pot next year, could run in parallel.

"The ESM must follow the EFSF," the government source said.