Germany's Merkel against pre-2013 debt restructure

BERLIN (Reuters) - The restructuring of the debt of any euro zone country before 2013 would be "incredibly" damaging to the credibility of the euro zone, German Chancellor Angela Merkel said on Monday.

Speaking to students in Berlin, Merkel defended in strong terms the principle that Greece or other countries should not undergo a debt restructuring before mid-2013 when Europe's permanent bailout fund is in place.

"It would raise incredible doubts of our credibility if we simply were to change the rules in the middle of the first programme," she said, insisting that private creditors should not be drawn into potential restructurings until the so-called European Stability Mechanism (ESM) comes into force.

The alternative could lead to a massive flight from euro zone bonds, Merkel warned, adding that creditors should only become involved in combating debt problems before 2013 on a voluntary basis.

Greece's mounting debt problems have led to market speculation it might have to restructure its debt soon although such a move has been repeatedly dismissed by Greek authorities and the European Commission.

Merkel also dismissed the idea that a country like heavily indebted Greece could leave the currency union, saying that such a move had no clear legal guidelines and would be against the interest of all euro zone states, including Germany.

"(It would be) a very, very bad sign that we can be divided," she said.

Greece and Portugal however should increase privatizations to help alleviate their debt burdens and increase competitiveness, she added.

(Reporting by Andreas Rinke, writing by Brian Rohan; Editing by Susan Fenton)