Austrian Chancellor Werner Faymann backs changes to the European Union treaty that would create a political and economic powerhouse even at the cost of relinquishing some national sovereignty, he told a Sunday newspaper.

The Social Democrat told Kurier he also saw room for the European Central Bank to step up purchases of distressed euro zone countries' bonds once members of the currency union put in place measures to steady their finances and cut debt.

Faymann, who governs in an uneasy coalition with the conservative People's Party (OVP), would have to convince a skeptical Austrian public to support sweeping changes to the EU treaty in a vote he said could take up to four years to hold.

I assume that in the medium to long term we will build a common Europe in which we will relinquish responsibilities. In a referendum I would vote for it and lobby for it, he was quoted as saying before a key EU summit on Friday.

I believe that we are stronger if we gradually build up this common Europe than if we withdraw into isolationism and tell ourselves the schilling (former currency) will come back at some stage and we are 27 countries again that act alone.

Faymann said Austrians would not have to vote on any EU treaty change that simply required countries to agree to balance their budgets and then stick to the fiscal rules.

But any change that let the European Commission intervene in national budgets would trigger a referendum in Austria in a process he said would take 2-4 years to organize.

He reiterated he could well imagine a system that let each country set its own budget but have the European Court of Justice monitor this, as German Chancellor Angela Merkel has also suggested.

MIND THE GAP

But even the Austrian government seems divided.

Conservative leader and Deputy Chancellor Michael Spidelegger told the Oesterreich paper he favored balanced-budget rules and clear penalties for violators, adding: I favor giving the Commission more supervision rights. I do not think much of setting the European Court of Justice loose on every national budget. And I clearly oppose having Brussels move into governing countries in future.

An opinion poll published by Oesterreich on Sunday showed the far-right Freedom Party -- a vocal opponent of euro zone bailouts that wants Austria to join a currency union with only other strong euro zone members -- continued to fare well.

Freedom, the biggest opposition party that campaigns on the motto Our Money for Our People, is neck and neck with Social Democrats at 27 percent and ahead of OVP on 24 percent, according to a Karmasin poll of 400 people conducted this week.

Faymann said he saw scope for a bigger ECB role in fighting the sovereign debt crisis and for joint debt issues once countries had their finances in shape. I do see that the ECB can buy more bonds. First we have to lay the foundation, which means ensuring stability and less debt.

The next part of the European house means of course -- as in the United States -- that we can have common state bonds. State bonds used to be safe and should become so again.

He said he would again propose at the EU summit adopting a tax on financial transactions, which could raise 1 billion euros ($1.34 billion) in Austria alone. And if Britain does not go along, we should introduce it in the euro zone, he said.

The conservative-led finance ministry opposes joint euro bonds and refrains from advising the ECB what action to take.

($1 = 0.7446 euro)

(Reporting by Michael Shields; Editing by Dan Lalor)

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