Merkel gives ground on higher euro firewal

(BERLIN) - Chancellor Angela Merkel indicated Monday Germany was prepared to allow a boost in the eurozone's firewall against the eurozone debt crisis ahead of talks on the issue by European finance ministers.

In an apparent shift of position amid fierce international pressure, Merkel said Berlin was open to combining 500 billion euros ($662 billion) from a permanent rescue fund that comes into effect in July with 200 billion euros already promised to debt-ridden countries.

While insisting that the permanent fund, the European Stability Mechanism, should stay capped at 500 billion euros, "we could imagine ... that it could run in parallel with the programmes already handed out -- so 200 billion (euros)," Merkel told reporters.

The two funds could run in parallel until the 200 billion euros is paid back by so-called "programme countries" that have already received bailouts -- Ireland, Portugal and Greece, she said.

"This will take several years and then the ESM will stand alone with its 500 billion euros," she explained.

This would potentially give the eurozone some 700 billion euros in funds to combat any possible future crisis -- if for example a bigger country such as Spain or Italy were to require a bailout.

European Union finance ministers are set to debate the issue during two days of informal talks in Copenhagen starting on Friday.

Earlier Monday, Amadeu Altafaj, spokesman for EU Economic Affairs Commissioner Olli Rehn, upped the pressure on ministers, saying: "We think it's essential that we come to an agreement at the end of this week in Copenhagen.

"Our baseline is very well known: we think that having a strong firewall in place is an element to reinforce confidence in our crisis response," he said.

Even the option now under consideration in Berlin is thought of as the least ambitious of the proposals put forward in Brussels.

The International Monetary Fund, the United States and other top economies worldwide have sought to raise pressure on Germany to drop its previous opposition to boosting the eurozone's firewalls against debt crisis contagion.

The group of 20 top economies indicated at a meeting last month they would increase their loans to the IMF to bolster the international lender's defences against the crisis but insisted the eurozone first put its hand in its pocket.

This decision is likely to be taken at a meeting in Washington on April 20-22.

Merkel said that recent movements on the bond markets -- particularly in Portugal and Spain where debt fears are resurfacing -- has shown that the crisis is far from over.

"Much has got better in the eurozone but we are still not in a normal situation and I think we will still be busy for a long time with genuinely overcoming the sovereign debt crisis," Merkel said.

Any proposal on the bailout funds needs parliamentary approval and Merkel faces a public that is tired of providing the bulk of the bailout money for the ailing eurozone.