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Sep 08, 2010, 08.43 AM IST
Germany will not support prolonging rescue mechanisms to underpin the euro indefinitely because too much help would damage the European single currency, Chancellor Angela Merkel said on Tuesday.
Germany, which has shouldered the biggest share of risks in a bailout of Greece and a 750 billion euro package assembled to protect the euro currency, has been pushing for tougher budget rules to avoid a repeat of the euro debt crisis in future.
"The current crisis mechanisms have time limits. Germany will not support prolonging them willy-nilly because someone says, 'now that we have such a great rescue mechanism it can just carry on like that for ever'," Merkel said in Riga.
Instead, the European Union should implement budget and finance reforms, she said in a speech in the Latvian capital.
"I'm making this clear because I'm firmly convinced that if Europe wants to carry on the success story of its domestic market and its joint currency, we need to be straight with ourselves and pursue solid budgetary and financial policies," the chancellor added, according to the text of a speech.
The 750 billion euro rescue mechanism, assembled with the International Monetary Fund (IMF), is due to expire in mid-2013.
Merkel noted that China, Russia and the Gulf states saw the euro, alongside the dollar, as a key international currency.
"But too much willingness to help at the outset will weaken the euro," she said, adding that Germany would press for tighter EU rules to enforce budget deficit limits.
One such proposal pushed by Germany is to create provision for an "insolvency law" for states which can no longer refinance themselves, which Merkel said was needed to ensure insolvent European nations did not drag down the others.
"We know that we don't have a majority for that at the moment. But we will work with great purpose over the next few years to ensure that we get a majority," she said.
A senior budget expert in Merkel's conservative Christian Democrats (CDU) said last month Germany would press for buyers of eurozone sovereign debt issued after the euro rescue mechanism expires to face the risk of a "haircut"-or discount -on their investment if the issuing state becomes insolvent.
EU finance ministers agreed on Tuesday to submit future budget plans for review by the European Commission and other EU governments to help strengthen EU budget rules.
"We need a structure so that countries which don't meet the criteria in the long term do not negatively affect other EU countries," Merkel said.
Tags: euro, Angela Merkel, debt crisis, European Union, International Monetary Fund, dollar, CDU, eurozone
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