Helping euro states vital for Germany, says Merkel

BERLIN, June 11 Sat Jun 11, 2011 10:50am BST

BERLIN, June 11 (Reuters) - Helping indebted European countries get back on their feet is vital to Germany's economic health, Chancellor Angela Merkel said on Saturday in a message aimed at the general public.

The comments come a day after Germany's parliament approved a non-binding resolution supporting extra emergency loans to fellow euro zone member Greece, but only on the condition that bondholders be made to share the bailout burden.

Asked in a weekly podcast if the euro zone debt crisis could threaten Germany's economic recovery, Merkel said: "If we don't take action in a positive way, that could happen, but it is exactly what we want to prevent."

"Therefore we should not simply allow the uncontrolled bankruptcy of a state -- instead we must see how we can increase the competitiveness of countries in difficulty and give them the chance to work off the debt," she added.

European Union leaders are due to finalise a new rescue package for Greece at a Brussels summit on June 23-24, which officials say will total 120 billion euros and ensure the country is funded through 2014.

German Finance Minister Wolfgang Schaeuble urged parliament on Friday to back additional aid for Greece but said private creditor participation in a new package was "unavoidable" and that he favoured a bond swap that would push out Greek debt maturities by seven years. [ID:nLDE7590LU]

In her podcast, Merkel said troubled members of the currency union must enact reforms, but warned that allowing one to go insolvent could trigger disastrous consequences for Germany.

"We should not do anything that would endanger the global recovery and put Germany back in danger," Merkel said, adding that the bankruptcy of investment bank Lehman Brothers had triggered a major recession in 2009.

"Such an event had not happened for decades and absolutely must be prevented," she said. The recession in Germany was its worst since World War II. (Reporting by Brian Rohan; editing by Patrick Graham)

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