February 26, 2009 / 2:27 PM / 11 years ago

UPDATE 2-Euro states to maintain solidarity in crisis-Merkel

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By Noah Barkin and Madeline Chambers

BERLIN, Feb 26 (Reuters) - Chancellor Angela Merkel said on Thursday that euro zone nations would have to show solidarity towards each other in the current crisis, her strongest signal yet that Germany is prepared to help weaker members of the bloc.

Countries like Ireland and Greece have been hit hard by a sharp economic downturn and are now being forced to pay hefty premiums over stronger bloc members to finance their debt, aggravating their financial troubles.

Speculation has grown in recent weeks that stronger members of the 16-nation euro zone, like Germany, could step in to help ailing partners. Merkel had declined until Thursday to comment on such a scenario.

“We have shown solidarity and things will stay like that, but this must be on the basis of the commitments that form the foundation of our common currency,” Merkel said, when asked about possible German aid to fellow euro zone members.

Speaking at a news conference with the foreign press in Berlin, she referred directly to Ireland, which faces ballooning deficits, saying: “A country like Ireland .. is in a very different situation from a country that has fewer banks, such as Slovakia.”

Germany has made clear it opposes the idea of a joint euro zone bond issue to alleviate financial pressure on fragile states in the bloc.

But a consensus seems to be forming around some other form of aid, with strict conditions attached that would compel recipient countries to consolidate their budgets in line with the goals set out in the EU’s Stability and Growth pact.

COORDINATED BOND ISSUANCE

Merkel said it was important for euro zone states to feel an obligation to the pact but acknowledged it was as yet unclear how Europe would return to a path of budgetary discipline.

She welcomed a pledge by new U.S. President Barack Obama to return to a policy of fiscal discipline in the United States once the worst of the crisis is over, saying he had pointed the way forward for Europe.

“I find this psychologically very interesting and welcome it hugely,” Merkel said of Obama’s pledge.

She acknowledged the divergence in bond yields within the euro-zone, but said people should not assume a “worst possible scenario”.

Asked whether European finance ministers would soon discuss the issue of helping fellow euro zone member states as Italian Prime Minister Silvio Berlusconi suggested on Sunday, she said coordination was necessary, particularly on bond issuance.

“The proliferation of bonds that must be issued by different countries around the globe at the moment leads to a difficult situation,” she said.

“Given the high levels of government debt the question arises whether we can coordinate more, not just in the euro bloc but around the world — that is an exciting question and we will talk further about it.”

EAST EUROPEAN BANKS, G20 GOALS

Merkel also said EU leaders would discuss the problems facing banks in central and eastern Europe at Sunday’s summit, saying affected nations would report on the situation.

She said there was a willingness in the EU to work together on the issue but that countries in the region had to provide information and give a clear message. The situation was complex as each country was experiencing different problems.

Merkel also touched on G20 efforts to reform global financial rules, saying Europe still had to convince the United States to relinquish some of its sovereignty by giving the International Monetary Fund (IMF) and Financial Stability Forum (FSF) more supervisory responsibilities.

She said this would “surely be a longer process” than agreement on other G20 aims, like drawing up a list of tax havens for possible sanctions. (Editing by Toby Chopra)

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