The 17 countries of the beleaguered single currency should form a federalised political and financial union within the EU, according to the man Angela Merkel has charged with firefighting the euro crisis.

Jörg Asmussen, the former deputy German finance minister who has played a key role in managing the euro crisis and is now the German board member at the European central bank in Frankfurt, called on Monday for a politically integrated eurozone that would split the EU of 27 in two, with the hard core joined in a "banking union, fiscal union, and political union".

This political union should be buttressed by a special fund taken from the European budget and a financial transaction or Tobin tax levied in the eurozone, according to Asmussen.

To focus on this project, the EU should abandon, at least temporarily, its expansion plans in the Balkans and Turkey.

Asmussen's speech in Berlin came as European governments sparred over how to respond to the worsening Greek emergency ahead of a summit in Brussels on Wednesday evening which will mark the debut of President François Hollande of France. All the signs were that Hollande would try to push Germany into accepting shared liability for the debts of the 17 eurozone countries through pooled eurobonds.

Berlin reacted angrily on Monday to the pressure which could see it isolated in Brussels, just as Chancellor Angela Merkel found few allies for her policies at the G8 summit in the US at the weekend. "The wrong recipe at the wrong time with the wrong effects," said Steffen Kampeter of the German finance ministry, of the French push for eurobonds, which is nonetheless likely to be supported by Italy, Spain, Britain, and the European commission.

The notion that Berlin should carry the can for others' debt is deeply unpopular in Germany and Merkel, weakened by recent regional elections and running for a third term next year, is unlikely to yield.

With the policy battle being framed in terms of German-scripted austerity versus French-led growth strategies, Asmussen rejected Hollande's demands for the eurozone fiscal pact to be reopened.

"The fiscal pact cannot be renegotiated or softened," he said. But it could be "complemented" by a "growth package" entailing labour market reforms, extending the services sector across the EU single market, and using the EU budget and European Investment Bank to finance job-creating infrastructure projects. He admitted that these measures, some of them likely to be agreed on Wednesday, would have no quick impact on the prospects for European recovery.

More contentiously, Asmussen called for a big leap forward towards a federalised union of the countries using the euro, while warning that such a radical step would need to carry the support of voters.

"The advantages of the currency union are so magnificent that they should be stabilised through deepening. That means a fiscal union and a banking union as well as a democratically legitimised political union."

A big problem was that electorates felt cut out of EU policy-making, not least in Germany because referendums are proscribed constitutionally because of Hitler's abuse of the instrument.

"European integration in Germany has largely been a project of the elites until now," Asmussen conceded. "That's why I'm proposing an open political debate."

Asmussen said the eurozone's new permanent bailout fund had to be up and running as soon as possible this summer. "A special fund of the EU budget for the eurozone could then follow," he said.

In the eurozone "political union", the European parliament would need to be given much more extensive powers in the interests of democratic legitimacy. The "special fund" from the EU budget as well as a Tobin tax in the single currency area would finance the new inner union and there would be special sessions of the parliament's economic and financial committee attended only by MEPs from the eurozone countries.

Asmussen's proposals are highly divisive and would also present David Cameron with tough choices.

Ahead of chairing Wednesday's summit, Herman Van Rompuy, the president of the European council, appeared to lend support to the German agenda.

"There should be no taboos concerning the longer-term perspective," he said. "It is not too early to reflect on possible more fundamental changes within the monetary union. The perspective of moving towards a more integrated system would increase confidence in the euro."