Chancellor Angela Merkel said there should be “no taboos” in plans to rescue Europe’s single currency and euro-area leaders must step up their efforts to convince financial markets that banks will be shielded.

Merkel said she welcomed recommendations made yesterday by the European Commission, the European Union’s executive body, which included allowing the permanent bailout fund to channel aid directly to banks. Speaking in the Baltic Sea coast city of Stralsund today, the chancellor signaled the EU could work more closely to protect its banks, saying there are “possibilities for greater cooperation.”

“We could certainly make clearer to international financial markets what’s going on in Europe in terms of new institutions and new possibilities in order to relieve the concern that perhaps banks are unstable,” she told reporters. While repeating that leaders should ditch “taboos,” she said some recommendations being discussed would require a change in EU treaties and the trajectory for reforms would be “in the next five to 10 years.”

Merkel, under pressure from traditional allies in Italy, France and the U.S. to shift her response to the debt crisis as the market turbulence escalates, sought to make a show of unity, saying that European leaders have a “common agenda” on budget consolidation, structural overhauls and growth.

The German chancellor rejected the notion of a north-south divide in Europe and again lauded Spanish Prime Minister Mariano Rajoy for taking steps to repair his country’s banking sector.

“I can’t say that” northern European countries closer to the Baltic sphere “are a unified grouping,” Merkel said in Stralsund, where she hosted a summit of leaders from the Council of the Baltic Sea States. “There is a common agenda that we don’t need to be divided over.”

Italian Prime Minister Mario Monti called on Merkel today to take steps to halt the crisis before a backlash builds against budget cuts. Monti and Bank of Italy Governor Ignazio Visco pushed the German government to give up its opposition to direct euro-area aid for hard-hit banks.