Berlin: German Chancellor Angela Merkel pushed forward on Saturday with what markets see as an emerging plan for more effective action to contain the European financial crisis, urging tougher rules against government overspending.    

She said next week's European Union summit would take up ways to enforce compliance and write those changes into EU treaties -- a drawn-out process.
   
"The European crisis will not be solved in one fell swoop," Merkel said. "It's a process, and this process will take years."
   
The push by Merkel on debt rules -- a day after French President Nicolas Sarkozy made the same case -- is being seen as one half of a fresh approach by European leaders to finally get a grip on the crisis more than two years after it started in Greece.
   
The other half could be more short-term help for heavily indebted governments from the European Central Bank. Bank President Mario Draghi on Friday appeared to dangle such an offer if political leaders at the December 9 summit can come together on the kinds of spending rules that Merkel and Sarkozy are advocating.
   
"Other elements might follow," Draghi said, fuelling speculation that the bank could step up its so-far limited programme to buy government bonds issued by struggling countries such as Italy and Spain. The programme helps keep their borrowing costs down.
   
Draghi stressed the bond buys "can only be limited." That has left analysts speculating he might have other forms of support in mind. Those could include extending credit to banks that are having trouble borrowing money from each other because of market fears they may suffer losses on government bonds they hold. Banks borrow vast sums of money from each other on a daily basis to fund their operations, but if they fear another bank could go bust, that credit market dries up quickly.
   
European stocks and bonds have rallied this week on hopes that governments will agree to tougher spending controls, potentially paving the way for the ECB to more aggressively support financially weak states.
   
Stocks rose in Asia, Europe and the United States, while the yield on Italian 10-year bonds -- indicative of the rate it would pay to raise money -- fell to 6.48 percent on Saturday from over seven per cent the day before.
   
Markets have repeatedly risen on anticipation of more aggressive action by governments -- only to fall when summits result only in statements of intent or proposals that lack detail.

(Agencies)