Merkel: Europe's rescue fund needs to be expanded

BERLIN (AP) -- German Chancellor Angela Merkel said Sunday that she would not rule out letting a eurozone country default on its debts once the currency union has its permanent rescue fund in place.

In an hour-long interview with ARD television, Merkel underlined the importance of an expanded mechanism to prevent future crises, such as that in Greece, from spilling over into other nations.

The German parliament is set to vote Thursday on expanding the powers of the European Financial Stability Facility to allow it to buy government bonds, help bail out banks and quickly loan money to troubled countries.

Merkel said that once the EFSF's permanent successor, the European Stability Mechanism, is in place, ``I don't exclude that we at some point ... that one could do the insolvency of a state just as of banks.'' The ESM is currently slated to start in 2013.

The chancellor also said a permanent structure would allow other European partners to set up a ``barrier'' around Greece to prevent a domino-effect on other nations.

Merkel underlined her argument for making changes to European regulations in order to allow for an ``ability to intervene'' to discipline member nations that fail to stick to the regulations set up to govern the common currency.

``We must only take steps that we can truly control,'' Merkel said.

Merkel expressed confidence that her governing coalition would be able to pass the expanded rescue fund.

``I would like to have a majority and I am confident that I will get it,'' Merkel said.

Opposition parties have said they would support the expanded rescue fund, ensuring its passage despite dissent from coalition members who have threatened to withhold their support.