* Berlin insists on treaty change to strengthen budget rules
* Brussels resists German idea of suspending voting rights
(Recasts with Rehn comments)
By Andreas Rinke and Jan Strupczewski
BERLIN/BRUSSELS, Oct 26 (Reuters) - Germany insists the EU's fundamental treaty must be changed to strengthen the bloc's budget rules, government sources said on Tuesday, putting Berlin at odds with the EU executive ahead of a summit later this week.
Chancellor Angela Merkel and France's Nicolas Sarkozy last week agreed the need for changes to EU law to make it possible to suspend voting rights of EU states which seriously violate the principles of the Economic and Monetary Union (EMU).
The German government sources said that without agreement on such treaty changes, Germany would block approval of European Council President Herman van Rompuy's proposals on reform, being presented to EU leaders this week. [ID:nLDE69M0CK]
"For us this is a package," one of the German sources said, adding that Germany would not back the van Rompuy report if no deal was reached over the treaty alterations.
Van Rompuy's Task Force report sets out a five-point plan to improve EU budget discipline, including the provision of a wider range of sanctions and measures, both financial and political. [ID:nBRU011086]
In general Germany supports the bulk of what the report proposes.
In Brussels, EU Economic and Monetary Affairs Commissioner Olli Rehn indicated his reluctance over the German proposal that countries violating the EU's budget rules should be stripped of their voting rights at meetings of EU ministers.
"My personal view on the suspension of voting rights is that it is not necessarily in line with the idea of an ever-closer Union, which is in the treaty of the EU," Rehn told reporters.
EU foreign ministers indicated on Monday that Germany and France face an uphill battle to secure backing for a change to the EU's fundamental treaty. [ID:nLDE69O1TQ]
Rehn said the EU executive would also prefer to create a permanent mechanism for crisis resolution in the euro zone without changing the EU's main law.
Germany and France have called for changes to the EU treaty to accommodate a crisis-resolution mechanism that would replace the current ad-hoc emergency lending funds for Greece and the whole euro zone which end in 2013.
"We would by far prefer to do it without treaty change," Rehn said after addressing a conference.
Such a treaty change would require the agreement of all 27 members of the bloc and is seen as very difficult.
"We are exploring the legal possibilities and constraints, but we do not want to rule out treaty change concerning a crisis resolution mechanism," he said. (Additional reporting by Marcin Grajewski; writing by Paul Carrel; editing by Patrick Graham)