* Weidmann: Europe may have to pressure banks on capital
* Says no question of Greece leaving euro zone
* Says Europe must decide if wants political union
By Sarah Marsh
BERLIN, Oct 13 Europe must be prepared to exert pressure on its banks to shore up their balance sheets while bracing to support them if necessary, Bundesbank chief and ECB policymaker Jens Weidmann was quoted as saying in a German newspaper on Thursday.
"Ultimately, we also have to be prepared to exert pressure," Weidmann told the Bild daily. "Banks should strengthen their capital on their own."
"It is also important to be able to support banks if necessary. This is up to individual states and if necessary, they can borrow funds from the EFSF rescue fund for this," he added.
Weidmann said most banks were in a better position than before the crash of U.S. investment bank Lehman Brothers in 2008, and regulation had also come along although "there is still a lot to do."
Euro zone states are working on plans to shore up the balance sheets of banks through recapitalizations to restore confidence in -- and bolster -- the banking system.
They may also ask banks to accept losses of up to 50 percent on their holdings of Greek debt, officials said this week, as part of a plan to avert a disorderly default and to end a crisis threatening the world economy. For details, see [ID:nL5E7LC2D9]
Weidmann said a Greek debt writedown could not "be ruled out," although such a step would not end Greece's problems. But he also said there was no debate about Greece leaving the euro zone.
"Greece must get its state sector under control and make its economy competitive. A debt writedown must not become an attractive way out of self-made problems. Otherwise trust will never return to the sovereign debt issues of at-risk countries," Weidmann told Bild.
Weidmann also warned politicians against leveraging the European Financial Stability Facility (EFSF) bailout fund.
EUROPEAN POLITICAL UNION?
European states are at a crossroads and must decide whether to go the path of greater political union or of greater individual responsibility, Weidmann added.
"We need clarity on Europe's future path to provide calm on the markets," he said.
Either the individual responsibilities of states and investors must again be strengthened, or Europe must chose the path of political union, meaning countries giving up a certain amount of sovereignty, he said.
Two years into a crisis that leaders have warned could plunge western economies back into recession, the 17-member currency bloc is struggling to deliver the "big bang" crisis solution that foreign governments, economists and investors say is needed to stop the rot.
German Chancellor Angela Merkel and French President Nicolas Sarkozy promised on Sunday to come up with a "comprehensive plan" for solving the crisis by the end of the month.
Weidmann reiterated criticism of the European Central Bank's bond-buying plan, saying he viewed it "with concern."
"We are buying ourselves time with this at best and are taking risks without solving the actual problem," he said, noting you could not buy "that much" time through this method.
"The ECB is independent. It is important for there to remain a clear separation between monetary and financial policy, and for credibility not to be endangered," he said.
Weidmann had opposed the ECB's decision to reactivate the bond plan following a 19-week pause, to buy the bonds of Italy and Spain after they came closer to succumbing to the crisis.
Two German ECB policymakers, Juergen Stark and Axel Weber, have resigned this year in protest at the bond-buying plan.
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