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UPDATE 1-Merkel ally resists EU overtures on fund expansion

Published 01/25/2011, 02:05 PM
Updated 01/25/2011, 02:07 PM

* EU seeks to convince German party on EFSF boost

* Barroso to meet Merkel, warns against delays

(Adds Merkel with Barroso, quotes, background)

BERLIN, Jan 25 (Reuters) - Germany's Guido Westerwelle, head of Chancellor Angela Merkel's junior coalition partners, said on Tuesday after meeting the top EU economic official he was still not convinced the euro zone bailout fund should be expanded.

"To discuss expanding the rescue fund today, when only 10 percent has been used, is not convincing," Westerwelle, who is foreign minister and deputy chancellor, said after Olli Rehn, the European Economic and Monetary Affairs Commissioner, met members of Westerwelle's Free Democrat Party (FDP).

The Merkel government's wariness of a headline raise in the European Financial Stability Facility puts it at loggerheads with European Commission chief Jose Manuel Barroso, who wants the 440 billion euro fund increased to defend the euro.

Rehn gave a speech to FDP members of parliament in which he said the euro zone could get over its debt crisis this year and should move towards automatic sanctions for debt sinners.

"If we show the necessary determination and courage, it is possible Europe will overcome the debt crisis in 2011," he said.

Such comments may have been directed at German taxpayers who are showing donor fatigue from the Greek bailout and euro zone rescue fund last year. Germany wants its euro zone partners to commit to budget discipline in return for any more assistance.

Barroso was due to meet Merkel for a private dinner later on Tuesday, having said in a speech in Brussels it was important to "avoid this trend to procrastination", without naming Germany.

Merkel and Finance Minister Wolfgang Schaeuble are keen to find ways of beefing up the EFSF to maximise its full capacity, currently limited to about 250 billion because of the guarantee system required to maintain its triple-A credit rating.

But the FDP, whose popularity has tumbled while Merkel's own conservatives have benefited from her management of the economic recovery, sees itself as champion of the taxpayer and as such has spoken out against any increase in euro zone guarantees.

"We do not have a crisis in the euro, we have a debt crisis in Europe. And the only sensible, bearable path is to combat the causes and seek more discipline among member states," said Westerwelle. (Additional reporting by Thorsten Severin; writing by Stephen Brown and Brian Rohan; Editing by Matthew Jones)

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