The head of the European Union's executive Commission says the bloc's institutions and cooperation between member states must be strengthened to overcome its debt crisis.

"Europe must either transform itself or it will decline," Jose Manuel Barroso said Wednesday in Berlin, but warned that a separation between the 17 eurozone countries and the remaining 10 members must be avoided.

He cautions that "a union dominated by an unhealthy balance of power or any kind of directorium" would be detrimental to the bloc as a whole.

Barroso also called on Germany, Europe's biggest economy, "to show leadership in partnership".

Meanwhile German Chancellor Angela Merkel said the EU needs treaty reform in order to survive the effects of the debt crisis in the euro zone, less than 2 years after the latest new EU treaty, the Lisbon Treaty, entered into force.

In her words, the situation in Europe had become "unpleasant" and the bloc would not survive unless it showed the world it was capable of adapting to the debt crisis.