David Cameron and Angela Merkel pledge unity

Prime Minister David Cameron and German Chancellor Angela Merkel today pledged "strong friendship", but remained at odds over key measures to restore economic stability to Europe.

Following talks in Berlin, Mr Cameron said it was "obvious" that he and Mrs Merkel had differences, but insisted they would work together to resolve the current crisis and promote growth in Europe.

Both agreed that a strong single currency was in Britain's and Germany's interests and that "decisive action" was needed to shore it up.

But there was no disguising the gaps separating them on the specifics of what that action should involve.

The Prime Minister stuck to Britain's position that it is for the eurozone countries and institutions - such as the European Central Bank - to provide financial support for the single currency.

"All the institutions of the eurozone have to stand behind and back and do what is necessary to defend it," he said.

But German foreign minister Guido Westerwelle warned that it would be a "momentous mistake" to ask the ECB to act as a lender of last resort by printing money to help ailing eurozone economies.

In an article in the Financial Times, he wrote: "Putting the ECB's printing presses to work might at best bring some short-term relief. But it would have dire consequences, both raising inflation and dissipating vitally important incentives for reform."

Meanwhile, Mrs Merkel acknowledged that no progress had been made on a Europe-wide Financial Transactions Tax, which Germany wants to use to help fund single currency bailouts but Mr Cameron believes will unfairly hit the City of London.

The Chancellor made clear that Germany will press ahead at the forthcoming European Council summit on December 9 with proposals for "limited" treaty change to tighten the fiscal discipline of the eurozone.

"We see it as crucial... that we develop more of a possibility of enforcing the rules of the European institutions so that national governments do abide by their commitments," she said.

"A limited treaty change, only for the members of the eurozone, is of the essence."

Mr Cameron agreed that long-term solution to the eurozone crisis will require "proper rules for fiscal discipline".

But he is wary of tinkering with treaties, which would undoubtedly spark backbench Conservative calls for a referendum. And he is concerned that amendments affecting only countries using the single currency would hasten the creation of a two-speed Europe.

In a mark of the pressure on the Prime Minister to renegotiate the terms of Britain's membership of the EU, influential backbencher David Davis today called on him to secure "a permanent, universal opt-out" from European laws.

Writing in The Daily Telegraph, Mr Davis said: "If we do not like a new law, Parliament should be able to reject it."

Today's meeting in Berlin came as Italy's new Prime Minister Mario Monti comfortably won a vote of confidence in the Rome Parliament, days after the technocrat was installed to replace Silvio Berlusconi.

Mr Cameron started the day with breakfast talks in Brussels with European Commission President Jose Manuel Barroso, after which the two men released a statement agreeing "the importance of prioritising the decisive action needed to ensure the stability of the euro area as well as fast-tracking measures to stimulate growth and jobs".

There was agreement in Berlin over the need to improve European competitiveness, complete the single market and hold down the EU budget, which both Mr Cameron and Mrs Merkel insisted should not rise by more than inflation.

Speaking alongside his German counterpart, Mr Cameron said: "It is obvious that we don't agree on every aspect of European policy, but I am clear that we can address and accommodate and deal with those differences."

Britain is in the EU because it is "an engaged trading nation" which sees "huge potential" in the completion of the single market, said Mr Cameron.

The UK and Germany "share the same plan" for growth, competitiveness and deregulation.

"This is a big agenda and, as growth in Europe stalls, it becomes an even more essential agenda for us to work together and for us to make sure that we get this through the European Council," he said.

Mrs Merkel acknowledged the UK had "a few difficulties here and there with certain legal provisions of the EU".

But she added: "We both have interests, but we also have strong bonds of friendship and these strong bonds of friendship bring us to say we will work together closely in the period leading up to December 9 because we absolutely understand each other's viewpoints."

Shadow foreign secretary Douglas Alexander said: "For all the warm words at the end of today's meeting, David Cameron is actually leaving Berlin just as isolated as he was when he arrived.

"That is a genuine concern for those of us who want Britain to be a strong, and indeed leading, voice in trying to find a way forward."

PA