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Germany s Merkel denies euro is in crisis

MADRID, Feb 3, 2011 – German Chancellor Angela Merkel headed to Spain on Thursday insisting the debt woes of a few European nations do not amount to a crisis for the euro.

The German leader also stood by her refusal to countenance a common eurozone bond to bail out troubled European Union members in an interview with Spain\’s public broadcasters.

Rather, she said, other EU nations should follow Berlin\’s example of austerity.

Merkel also praised Spain\’s economic, fiscal and banking reforms ahead of a summit with Prime Minister Jose Luis Rodriguez Zapatero, at which the leaders plan to deliver a united message in support of the euro.

Her comments came on the eve of an EU summit in Brussels where the debt crisis in parts of the 17-nation single currency area will be a key focus.

The government in Germany, Europe\’s strongest economy and the paymaster of the EU, is under pressure from voters reluctant to see their money spent to help out wayward economies.

Unsustainable debt mountains have already forced an EU-International Monetary Fund rescue mechanism to throw lifelines to Greece and Ireland. There are concerns Portugal, Spain and even Italy could follow.

"The euro is a success story and it has driven us in safety during the crisis in the financial system," Merkel told the radio station RNE and TV broadcaster TVE.

"We don\’t have a euro crisis. What we have is a debt crisis in some nations and in others a problem of competitiveness."

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The German leader cited her country\’s constitutional amendment forcing a reduction in public deficits as a way to fight public debt.

Merkel said the European Union should boost competitiveness by moving towards a convergence of their economic and social policies although she stressed "this does not mean we are going to harmonise everything."

"We all have the duty to not spend more than we earn each year. That is why we have introduced in our constitution a limit on indebtedness," she added.

Germany wants other member states to agree to a "competitiveness pact" before it signs additional guarantees for the European Financial Stability Facility, the rescue fund for eurozone members.

Merkel said the creation of pan-European bonds, an idea first floated by Italy and Luxembourg, was "not the correct response because that would mean we all pay the same interest on debts and it would not be clear who is making more of an effort and who is making less of an effort".

Germany faces mounting pressure from the European Commission and its euro zone partners to strengthen a 440-billion-euro (590 billion dollar) rescue fund for troubled member states.

If the European Union was forced to use the fund to rescue Portugal and Spain, many economists have estimated that additional lending capacity would be required.

"Spain has taken decisive steps, the reform of the savings banks was an important step, I know Spain has done some very difficult things," Merkel said.

The Spanish government signed Wednesday a "grand social pact" with unions and business groups on sweeping reforms to revive the economy that will gradually increase the retirement age from 65 to 67 just as Germany has done.

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Last week Madrid announced all lenders must raise their levels of rock-solid core capital or face state intervention. The government has also changed the labour law to make it easier to fire workers in order to boost growth.

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