By Catherine Bremer and Elizabeth Pineau
PARIS (Reuters) - France said on Tuesday that it would support taking steps towards budgetary integration in Europe, as Berlin wants, but the first priority must be to agree urgent measures to solve the euro zone's debt crisis.
Following talks in Paris with his German counterpart Michael Link, France's European Affairs Minister Bernard Cazeneuve said the issues could be worked on in parallel but a fiscal union could not be built until the current crisis has been brought under control.
His comments were the latest sign EU leaders are aiming for an ambitious compromise at a June 28-29 summit where France and southern euro zone countries would get an agreement from Berlin to a growth pact and a path towards a banking union and euro bonds in return for a commitment to work towards fiscal union.
Separately, a presidential source told Reuters that President Francois Hollande will outline France's position in a written submission to the European Council in the days ahead.
"We very much wish to continue the political discussion on the process of greater economic and monetary integration and we believe, like our German friends, in the building of a political Europe," Cazeneuve told reporters, flanked by Link.
"At the same time, what comes out of integration measures cannot constitute the response to the urgency of the crisis we face," he added. "We continue to say that given the scale of the crisis we need urgent solutions for growth."
Hollande, France's first Socialist president in 17 years and little known internationally before he won the May 6 election, has come to power as political woes in Greece and Spain's banking crisis have thrust the euro zone into new turmoil.
His challenge to German Chancellor Angela Merkel's insistence on austerity-only policies looks set to result in EU leaders agreeing on a pro-growth pact to accompany a budget discipline pact agreed earlier this year.
But calls by Paris and Madrid for a banking union giving a cross-border agency supervisory powers over European lenders and for steps towards mutualised debt have prompted Merkel to demand agreement in return on an eventual fiscal union that would give Brussels more power over budgets.
Hollande is more open to the idea of ceding sovereignty to EU institutions to safeguard the euro than was his conservative predecessor Nicolas Sarkozy, but faces a struggle selling the idea to a public that is angry over economic gloom it increasingly sees as resulting from monetary union.
Hollande is on track to win a solid Socialist bloc majority in a parliamentary election runoff on Sunday that should make it easier for him to cut a deal with Berlin, as he would not need the support of eurosceptic hard-left lawmakers.
A top European Central Bank policymaker, Joerg Asmussen of Germany, said he expected relations between France and Germany, the EU's biggest powers, would settle down after the election.
"I am relatively relaxed (about relations)... I am very certain that after that (the election runoff) the German-French engine will function, which is a necessary precondition to get progress in Europe," he told a business gathering in Berlin.
The French presidential source said Paris's preparatory text for the June 28-29 treaty would seek to find "positive talking points and areas of agreement". Cazeneuve said the days ahead would be about compromise.
"We want to find a way for the European Union to overcome this crisis and for that you need compromises," Cazeneuve said.
"There will be no political integration if we do not succeed in overcoming the financial and economic crisis and we will not manage to overcome the crisis if we do no not have a supplementary process of integration."
Earlier on Tuesday, French Finance Minister Pierre Moscovici said an aid package of up to 100 billion euros for Spain's banks was the first step towards a banking union in the euro zone.
"What we did for Spain was a convincing step forward but we must go further still," he told Europe 1 radio. "It is the moment where Europeans must define the framework for definitively consolidating the euro in political, budgetary and social terms."
Germany believes that a banking union - comprising a common financial regulator and a single deposit guarantee and capitalization fund for banks - could only work if anchored in a fiscal union with powers to stop members breaking budget rules.
Hollande is to meet senior German SPD social democrats in Paris on Wednesday for discussions on Europe as the centre-right Merkel battles to obtain the two-thirds majority support she needs to ratify the EU's fiscal pact and pass a bill on the new European Stability Mechanism, a permanent bailout fund.
The SPD leaders will sit down with Merkel earlier on Wednesday as they try to agree a proposal for a financial transaction tax that the SPD wants to make a condition for its support for the upcoming European bills.
Even before his election, Hollande had the support of Germany's left for his push for growth instruments like joint project bonds to fund infrastructure projects and an increased lending capacity by the European Investment Bank.
(Additional reporting by Elizabeth Pineau and Paul Taylor in Paris, Annika Breidthardt in Berlin; Editing by Stephen Nisbet and Catherine Evans)