* Berlin wants rescue mechanism legally watertight-source
* Taxpayers Assn says no-bailout clause must not be changed
By Sarah Marsh
BERLIN, Oct 25 (Reuters) - Changing the EU treaty to allow a permanent rescue mechanism would be "extremely dangerous", Germany's taxpayers' association (BdSt) said on Monday, echoing concerns that nearly stalled a key euro zone aid programme.
Berlin wants to reform the European Union's Lisbon treaty to incorporate a permanent system for handling financial crises such as the possible collapse of a sovereign debt issuer.
Many experts say this would entail changing the treaty's no-bailout clause -- a controversial issue for German taxpayer representatives who fiercely opposed forking out money for debt-ridden Greece earlier this year.
"This is extremely dangerous," said Reiner Holznagel, head of the BdSt which has over 300,000 members.
"The no-bailout clause is absolutely crucial because we don't want it to lead to financial transfers which would reward those (countries) that do not have solid budgets and punish those that are sorting their budgets out."
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The EU currently has only the European Financial Stability Fund (EFSF), a temporary mechanism created in May this year to handle the fallout from Greece's debt problems.
Berlin is uncomfortable with the 500-billion-euro EFSF, which expires in 2013, because it comes dangerously close to violating the no-bailout clause, which has led to legal challenges in Germany's highest court.
It wants a treaty change to make the legal option of either conditional help or default more clear.
"It would be difficult to introduce a permanent rescue mechanism without changing the treaty," a German government official said. "The point of the treaty change is to have something that is legally watertight and very solid."
But the BdSt's Holznagel said the no-bailout clause should remain in place as it is needed to create the right incentives for countries to keep a balanced budget.
Germany has spearheaded a European-wide push to reduce soaring public deficits by introducing strict austerity measures. Many Germans resented helping bankroll a euro zone bailout package earlier this year for use by other countries which they saw as fiscally irresponsible.
"Politicians' reactions to the crisis have been the same as those that led to crisis, namely the unscrupulous path to indebtedness," said Holznagel, noting that his association would lobby against a change to the no-bailout clause.
Holznagel said the Greek debt crisis had shown political influence on the European Central Bank was "much too big" and politicians were playing with the stability of the euro.
"We have to find a way back to the ECB making decisions independently and not under political influence," he said.
(Editing by John Stonestreet)