“This kind of European economic government is not a good plan,” Brüderle said in a statement released late Thursday. “Those who are now leaning towards a European economic government are working on the wrong project.”

The comments came after Lagarde floated ideas for more closely coordinated policies in an interview with the Süddeutsche Zeitung newspaper. “An economic government means seeking the approval of other states” before taking action, Lagarde was quoted as saying.

The same newspaper reported that several European countries, including Germany, are working on a permanent euro rescue mechanism that would include the creation of a new and independent funding institution.

Germany is considering a “European Stability and Growth Investment Fund,” according to a government paper seen by the Süddeutsche.

The mooted body would exist side-by-side with the European Central Bank, would benefit from the same independence and would be tasked with helping financially distressed eurozone countries under strict conditions.

The German finance ministry acknowledged that a plan had been worked on by its staff but was “in no way the official position of the finance ministry or federal government,” it said in a statement.

Meanwhile German Finance Minister Wolfgang Schäuble, who belongs with Brüderle to the centre-right coalition government but occasionally clashes with his colleague on policy, left the door open to enhanced forms of common governance under strict conditions at an undetermined point in the future.

Schäuble had been expected to meet Lagarde in the eastern French city of Strasbourg on Thursday, but the talks were cancelled because of bad weather and difficult transportation conditions, a French finance ministry source said.

At the last European Council summit this month, governments agreed to establish the framework for a future permanent eurozone rescue fund by March, to ensure the euro’s long-term stability.

The Süddeutsche Zeitung said governments which needed to borrow from the mooted fund would have to put up solid collateral such as gold reserves or private bonds.

The document said such a fund would have an “unlimited capacity for refinancing” and would be proposed to finance ministers in mid-January. In addition to Germany, Finland, France, Ireland and the Netherlands are working on proposals.

The EU set up a one-trillion-dollar rescue fund earlier this year with the help of the International Monetary Fund in the fallout from the Greek debt crisis but it will expire in 2013.

AFP/bk