BRUSSELS — European leaders were drawing battle lines Thursday as they headed for a summit in Brussels, with France pushing back against Germany's call for a new czar with wide powers to veto countries' budgets.
In an address to Parliament ahead of the meeting, German Chancellor Angela Merkel endorsed a proposal for the EU's monetary affairs commissioner to become an enforcer of the bloc's budget rules — including the power to refuse member countries' proposed budgets and send them back for changes.
Germany hopes that having a "budget czar" — a move that's been bandied about for months — will keep governments from overspending and needing new, expensive bailouts. But some countries, like France, are wary of handing control over their finances to unelected bureaucrats in a foreign capital.
"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," Merkel said. She insisted Germany would continue to push for the proposal.
President Francois Hollande of France — increasingly the counterpoint to Germany's weight in the EU — brushed off the suggestion as simply not on the table at this summit.
"The only decision that we have to take, to confirm, is putting in place a banking union by the end of the year," he said. "The first step is a banking supervisor."
Hollande wants the bank supervisor in place because leaders have agreed that, once there is proper supervision, struggling financial institutions will be able to tap Europe's bailout fund directly. That would be a huge relief to countries like Spain, which are facing the prospect of taking on enormous debts — and worrying markets in the process — in order to bail out their banks.
Or at least, it seemed European leaders had agreed to that in June. Since then, Germany, the Netherlands and Finland have muddied the waters and put the brakes on any decision about a banking union.
That could mean that few concrete decisions will emerge from meetings of the 27 national leaders in Brussels on Thursday and Friday.
Merkel again insisted Thursday that "quality must come before speed" in setting up the bank supervisor.
"There are a lot of very complicated legal questions, and I am not making the issue more difficult than it actually is," Merkel said.
With no relief in sight for beleaguered Spain, the question of whether it will ask for a bailout itself will likely be discussed. The government in Madrid said this week that it would decide in the coming weeks — although it is still hoping it can avoid asking for any kind of aid. Such requests represent a blow to a country's pride, and the governments that ask for them can get thrown out of office.
But the political pressure on Spain is great because should investors become convinced that Madrid will not request aid, they may once again sell of the country's bonds, causing its borrowing rates to rise. If Spain were to be locked out of bond markets because of excessively high rates, the 17 countries that make up the eurozone could scarcely afford to bail it out.
"It would be helpful ... if Spain asked for ESM (European bailout fund) aid," said Herman Van Rompuy, who is president of the European Council, the body composed of the leaders of all the EU countries. "But it is up to Spain to make up its mind."
Leaders could also discuss Greece, where rioters were pelting police with Molotov cocktails and chunks of marble on Thursday to protest the stringent budget cuts the country has had to implement in order to secure its rescue loans.
Greece's bailout creditors — the EU, the International Monetary Fund and the European Central Bank — have been engaged in tough negotiations in recent weeks over more budget cuts. The troika, as the group of creditors, has said it won't release the next batch of loans until more savings are made. Without those loans, Greece will default and probably be forced to leave the eurozone.
Budget cuts have been blamed for sinking many countries in Europe into recession and have unleashed protests around the continent.
Van Rompuy said countries were starting to see the first positive effects of austerity, with deficit levels down and borrowing costs falling.
"The first results are encouraging, but we are still suffering a lot," he said. He was referring to 25 million jobless in the EU and the bloc's "very modest growth prospects."
Long-term proposals for overhauling the EU also appear likely to be key topics of debate in Brussels.
Merkel 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."
Raf Casert, Don Melvin and Robert Wielaard in Brussels and Geir Moulson in Berlin contributed to this story.