By Noah Barkin
BERLIN (Reuters) - In the first speech of her third term, German Chancellor Angela Merkel urged European partners to tackle flaws in their currency union by ceding control over economic policy and making politically sensitive changes to the bloc's treaty.
Speaking in the Bundestag lower house of parliament a day after her new "grand coalition" government was sworn in, Merkel said progress in countries like Ireland and Spain showed Europe was overcoming the financial crisis that nearly tore it apart.
But she said it was too early to declare victory, describing the 17-member bloc that shares the euro currency as an unfinished project that could not afford to rest on its laurels.
"I know that pushing through treaty changes in the member states can be difficult, but if you want more Europe, you have to be prepared to develop it further," Merkel said.
"In a world that is constantly changing, we can't stand there and say that at some point we agreed the Lisbon Treaty and there's no need to change it again. This won't work."
Germany wants closer coordination of economic policy to complement the bloc's single monetary policy and will push at a summit of EU leaders this week for members to agree binding contracts with the European Commission that would oblige them to take certain economic reform steps.
At the same time, it is pushing for changes to the Lisbon Treaty to allow for greater European control over policy, a move that is highly controversial in other members, including neighbor France, where Merkel will travel later on Wednesday to meet with French President Francois Hollande.
France is one of a number of countries, including Italy and Spain, that are pressing Berlin for more "solidarity" in Europe to combat the economic distress, particularly in the bloc's southern periphery, that has sent unemployment soaring.
"We have a situation in Europe where Germany is often accused of blocking certain things. This is not true," Merkel said.
"If we got a real qualitative leap forward in terms of binding commitments ... then we could also imagine that new ways are found to provide those countries that require additional help to reach their goals with that help."
Merkel praised Ireland and Spain for their economic progress, and said there were signs of improvement in Greece, Portugal and Cyprus as well.
"Clearly the euro zone debt crisis is not yet overcome. One cannot emphasize this often enough. But we are seeing first successes and we are convinced it can be overcome permanently," she said in the Bundestag chamber.
(Reporting by Noah Barkin and Madeline Chambers; editing by Anna Willard)