By Noah Barkin and Gareth Jones
BERLIN (Reuters) - German Chancellor Angela Merkel has come out against handing the European Commission more powers, in the clearest sign yet that she is reining in her ambitions to create a "fiscal union" in which euro members cede control of their budgets to Brussels.
The comments, made in an interview with weekly Der Spiegel, come days after Merkel held talks with President Francois Hollande in Paris and the two unveiled joint proposals for the future shape of the euro area, including the creation of a permanent president of the Eurogroup forum of finance ministers.
Merkel spoke out strongly in favor of closer fiscal integration last year, but France and some other euro members have deep doubts about ceding sovereignty -- a step which would require politically sensitive changes to the EU treaty -- and Berlin appears to have realized that this resistance is too great to overcome for now.
With a German election looming in September and a new anti-euro party threatening to eat into support for her conservative bloc, Merkel may also be adjusting her message for voters at home, many of whom are leery about ceding national powers.
"I see no need in the next few years to give up more powers to the Commission in Brussels," Merkel said in the interview, adding that she agreed with Hollande on EU member states cooperating more on economic issues.
"We are thinking for example of the labor and pension markets but also of tax and social policy. Economic policy coordination in Europe is far too weak, it must be strengthened and this is rather different to giving more competences to Brussels," she said.
For much of last year, when the bloc's debt crisis was raging, Merkel spoke repeatedly of the need to move towards both a fiscal and political union in Europe to end the turmoil.
In October, for example, she said in a speech in the Bundestag lower house of parliament that European governments needed to go a "step further" in cementing fiscal discipline by "giving Europe real rights of intervention in national budgets".
She also voiced support at the time for a proposal by German Finance Minister Wolfgang Schaeuble to create a super-empowered European currency commissioner.
The move away from such views reflects both an easing of the crisis in response to actions by the European Central Bank and a shift in Germany's focus from insisting on deficit reduction in euro zone stragglers to pushing for structural reforms.
It may also be part of a broader compromise with Paris under which Germany drops its push for a federalist union in favor of an inter-governmental approach to integration that France has long supported.
In exchange, Berlin may have received assurances from Hollande that he will press ahead with reforming the ailing French economy, for example by aligning it more closely with Germany in the areas of pensions and labor market policy.
Merkel made clear at her news conference with Hollande last week that France must deliver on reforms prescribed by the European Commission in exchange for granting Paris two extra years to hit deficit reduction targets.
Hollande had infuriated officials in Germany and Brussels by initially suggesting that the Commission had no right to "dictate" to Paris. The Germans believe that a strengthening of the EU's Stability and Growth Pact has granted the Commission that right.
"The chancellor made very clear in Paris that Hollande had an obligation to follow the Commission's recommendations," a German official told Reuters on Sunday.
"We believe he understands what reforms need to be implemented, but he needs to convince a domestic audience that is under the false impression that enough has already been done."
In the Spiegel interview, Merkel also poured cold water on the idea of directly electing the president of the European Commission in an EU-wide vote. She and other members of her government, including Schaeuble, voiced support for this idea in the past but she told the magazine such a step risked upsetting the balance of the bloc.
The joint proposals sketched out by Germany and France last week are expected to be at the centre of the discussion between EU leaders at their summit in late June.
(Writing by Noah Barkin and Gareth Jones)