German Chancellor Angela Merkel said on Wednesday a European Union document laying out options for a deal on safeguarding euro zone states' public finances was a good basis for discussions at a March 11 summit in Brussels.

At a joint news conference with Austrian Chancellor Werner Faymann, Merkel said some of Germany and France's initial proposals, such as the scrapping of wage indexation, had been weakened in the EU document but were not off the table.

Berlin, backed by Paris, set ideas for the competitiveness pact at an EU summit on February 4, but many EU states were angered by what they saw as a 'fait accompli' by the two biggest euro zone countries and the measures contained in it.

Through these proposals, where indexation is certainly still mentioned, we can get stuck into discussions about the essential facts of competitiveness, said Merkel, who is due to meet with Portugal's Prime Minister Jose Socrates in Berlin later on Wednesday.

Lisbon has fought for months to stave off an international bailout but there are growing doubts about Germany's willingness to support expanding or reconfiguring the euro zone's rescue fund enough to calm investors, following a regional election drubbing for Merkel and growing parliamentary pressure.

Paris and Berlin want the euro zone, which now comprises 17 countries, to accept a competitiveness pact in exchange for boosting the scope and capacity of the bailout fund.

Portugal sold 1 billion euros in treasury bills on Wednesday, with yields stable and demand solid as the debt-laden country managed to avoid another sharp rise in borrowing costs, but fears it will need a financial rescue remained.

Austria, Spain, Belgium and Luxembourg had all expressed reservations about the scrapping of wage indexation.

The EU document, written by aides to European Commission President Jose Manual Barroso and European Council President Herman van Rompuy, said wage and productivity developments would form the basis to assess progress toward improved competitiveness.

While each country should decide on its own how to manage unit labor costs, respecting its own traditions of talks with workers and businesses, the document said governments should pay particular attention to enhancing decentralization of wage bargaining and improving the indexation mechanism.

ROOM TO MANOEUVRE

One of the proposals on the Franco-German wish list was a higher retirement age, based on demography, but Austria's Faymann insisted on Wednesday it was clear that legal pension ages could only be decided by national states.

The EU document suggests euro zone countries should pass special national legislation to safeguard the health of their public finances, as suggested by Germany and France.

Merkel and Faymann added that they still wanted to push through a proposal for a financial transactions tax across the euro zone. We want to push for this to be accepted by all euro zone members, Merkel said.

After the idea of such a tax failed to be welcomed globally, Germany has focused its efforts on implementation on a European level, noting it would not introduce one at a level smaller than the euro zone.

Faymann had previously said Berlin needed to throw more of its weight behind the tax. The tax is a question of justice, he told reporters on Wednesday. It is morally right and financial right to bring transaction tax into life.

Merkel's room to maneuver in euro zone negotiations has potentially been limited in recent days with the resignation of her most popular minister.

The resignation of Karl-Theodor zu Guttenberg as defense minister has deprived her of a trump card to attract conservative voters in state elections, which could in turn undermine her power and influence German policy on Europe.

(Reporting by Sarah Marsh and Brian Rohan, Additional Reporting by Andreas Rinke; editing by John Stonestreet)

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