BERLIN (MNI) – German Chancellor Angela Merkel Wednesday renewed
her call for a permanent crisis mechanism in the EU, after the current
rescue funds for Greece and the Eurozone run out in 2013.

“Germany cannot and will not agree to a simple prolongation” of
these funds, Merkel said in parliament, speaking the day before EU
leaders gather in Brussels for a two-day summit that is likely to
include some heated exchanges this an other topics, including a reform
of fiscal rules.

“We need a new robust crisis mechanism for emergency cases,” the
Merkel said. Private creditors will have to shoulder part of the
financial burden under that new mechanism, she demanded.

Such a new crisis mechanism will also require a change of EU
treaties to be legally on the safe side, Merkel said. The chancellor
said that she will call for such treaty changes at the summit, noting
that there is not much time left. “A solution has to be legally
implemented by summer 2013,” she said.

A German government source said Tuesday that Germany is currently
working on the details of a proposal for a new crisis mechanism.

“It has yet to be decided if it will include a rollover of
[government] debt, a restructuring, or a lowering of interest rates [on
government bonds],” the official said. The mechanism would be triggered
in the event of a severe fiscal crisis in a member country that
threatened the whole of the Eurozone. Regarding public contributions to
the new crisis mechanism, “loans, guarantees or a separate fund” are
conceivable, the official said.

Turning to the subject of foreign exchange, Merkel criticized in
the current talk about a currency war. “Foreign exchange rates should
reflect the medium-term fundamental data of an economy,” she said.

“A policy that aims to improve competitiveness via currency
manipulation has to be avoided,” Merkel stressed. In the end, everybody
will lose out if there’s a currency race to the bottom, she warned.

Merkel also rejected demands that governments should target
specific current account balance levels, a proposal made by U.S.
Treasury Secretary Timothy Geithner at the recent meeting of G20 finance
ministers and central bankers in South Korea.

“Quantitative current account balance goals cannot be the
solution,” Merkel said. Rather, countries need to tackle their
individual structural deficits, she argued.

Due to reforms by the government and by businesses, Germany is
currently emerging faster from the crisis than other countries, Merkel
noted. “We are the growth engine of Europe,” she boasted.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

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