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Posted at 5:56 PM ET, 02/ 9/2011

Germany will be flexible on euro zone plan, official says

By Michael Birnbaum

BERLIN - A top German finance official said Wednesday that his government is willing to be flexible with other European countries over reforms proposed by Germany and France to shore up the euro zone's economy.

"There's always room for negotiation," Jörg Asmussen, state secretary at the German Finance Ministry, said in an interview.

On Friday, German Chancellor Angela Merkel and French President Nicolas Sarkozy met with European leaders to draw the basic outline of a comprehensive plan for a more cohesive euro zone economic policy by late March.

Their sweeping proposal, which suggests that euro zone countries coordinate social and economic policies that have traditionally been the exclusive domain of individual nations, immediately drew fire from the heads of some smaller countries. They objected to ceding authority to Brussels on issues such as retirement age, tax policy and debt limits.

Asmussen said Wednesday that Germany didn't expect countries to give up the right to determine their own policies but that the new structures would get countries to coordinate those policies with others. He said that Germany would work with the other nations on which policies would be included in the mix.

The widely differing economic circumstances in the 17-nation euro zone have led stronger nations such as Germany to come to the rescue of two debt-strapped countries, Greece and Ireland. With bailouts potentially needed in Portugal and Spain this year, Merkel has insisted that further German support come with strings attached, in the form of closer coordination of spending and budgets among the countries that use the common currency.

That leverage has frustrated smaller nations. But Asmussen said Wednesday that Germany expected other countries to be willing to make some concessions.

"We are willing to show solidarity, but this is clearly not a one-way street," he said. "There need to be things that other countries also contribute."

Asmussen also said Wednesday that his government is ready to act sooner to help stem the crisis, if necessary. But he did not say what action that would entail.

"If we have the necessity to act before the end of March because of the markets, we will do this," he said.

As part of the plan, Germany and other countries would commit the additional money needed to boost the European bailout fund, called the European Financial Stability Facility, to a total lending capacity of $603 billion, up from its current capacity of roughly $343 billion. That has been a desire of many European Union officials who worry that the fund would not be large enough to sustain bailouts if both Portugal and Spain should need them.

By Michael Birnbaum  | February 9, 2011; 5:56 PM ET
Categories:  International Economics  
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