George Osborne has urged countries in the eurozone to co-operate more closely on financial issues.
Speaking to the BBC's Politics Show, the Chancellor said more integration between nations using a single currency would help solve the debt crisis.
Mr Osborne said: "The lasting answer is that the countries of the eurozone are going to have to co-operate much more closely on issues of tax and spending.
"There's got to be more integration - the kind of thing actually that Britain would not tolerate and is one of the reasons we didn't go in the euro.
"But I think we have to allow the eurozone to do it whilst protecting Britain's interests and making sure that the European Union can still work for all those members who aren't in the euro."
In his interview, the Chancellor accused some European finance ministers of being "terrified" about the scale of their debts, and said it is thanks to the coalition's policies that Britain has not suffered a similar fate.
He urged critics to recognise that the UK's deficit is higher than that of Portugal, Greece or Italy.
If Britain had chosen an "alternative path" - one of spending and borrowing more - it would have led to "total disaster for this country", he added.
The alternative route would have pushed interest rates up and cost "many, many thousands more jobs", he said.
But Mr Osborne said the Government is preparing to do more to stimulate growth in Britain, and promised to announce plans soon.