Merkel firm against big euro fund increase

[March 17, 2012]  BERLIN (AP) -- German Chancellor Angela Merkel signaled some flexibility Friday on strengthening the 17-country eurozone's financial firewall, but insisted that there would be no increase in the headline value of the continent's rescue fund.

The permanent, euro500 billion ($650 billion) European Stability Mechanism is to start work this summer. Germany, Europe's biggest economy, has staunchly resisted pressure for a much bigger figure.

Over the past two years, the 17 countries that use the euro as their currency have been rocked by a series of financial crises as Portugal, Ireland and, most of all, Greece have asked for bailouts to protect them from defaulting on their debt. Many economists argue that to save eurozone from further financial shocks, a trillion-euro financial firewall needs to be in place.

The European Commission, the International Monetary Fund and several eurozone countries want the ESM to run in parallel with its temporary predecessor, the European Financial Stability Facility -- potentially taking the overall lending capacity to around euro750 billion. Berlin hasn't dismissed that idea but has shown little enthusiasm.

Merkel met Friday with leaders of Germany's main industry groups, which said in a joint statement that "an increase in the rescue funds is to be avoided." They said the ESM must not lead to "the granting of unlimited rescue loans."

"I can absolutely confirm that and say no one wants that, at least no one in the German government," Merkel said at a televised press conference in Munich.

"We will discuss further ... to what extent we can see whether there are possibilities to combine the EFSF and ESM, but the ESM will remain at 500 billion," she said. "No permanent, incalculable increase of the funds -- I find that very important."

She added that no decisions had been made about a possible combination of the funds.

"You can expect that we can say toward the end of March how it is," she said.

The prospect of endless bailouts is unpopular in Germany and particularly in the ranks of Merkel's center-right governing coalition. In Germany, decisions on the rescue funds require parliamentary approval.

Merkel sidestepped a report by the Financial Times Deutschland newspaper that she is lobbying for her finance minister, Wolfgang Schaeuble, to become the new head of the eurozone's finance minister gatherings.

Current eurogroup chairman Jean-Claude Juncker, who is also Luxembourg's prime minister, has announced that he won't seek another term this summer.

Schaeuble himself said in Berlin that "we have other duties at the moment than dealing with such speculation."

Merkel said he is "an outstanding finance minister who of course plays an important role in the eurogroup."

But "there is a series of personnel decisions in the European Union that I don't want to comment on here, that also haven't been made, and so nothing can be said about this today."

Merkel's spokesman, Steffen Seibert, said the German government has made no decision on the issue and wouldn't participate in speculation.

[Associated Press; By GEIR MOULSON]

Juergen Baetz contributed to this report.

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