UPDATE 1-Merkel signals readiness to compromise on firewall
* Germany open to EFSF continuing to lend through mid-2013
* Compromise comes amid international pressure on Berlin
* Merkel faces domestic opposition to firewall boost
BERLIN, March 26 (Reuters) - German Chancellor Angela Merkel signalled for the first time on Monday that she was prepared to compromise on boosting the resources available for bailing out struggling euro zone states, paving the way for an increase in the bloc's firewall to contain the debt crisis.
Speaking at a meeting of her conservative Christian Democrats (CDU), Merkel said she could imagine that the bloc's two rescue funds could run in parallel so that a total of 500 billion euros in new funds were available for problem countries.
The only way to accomplish this, without accelerating payments into the bloc's new fund, the European Stability Mechanism (ESM), would be to allow the existing fund, the European Financial Stability Facility (EFSF), to continue to be an active lender between mid-2012 and mid-2013.
"We say the ESM should remain permanently at the 500 billion euro level, but in order for us to have 500 billion euros in available money, then we can imagine ... allowing the programmes ... to run in parallel," Merkel said.
Germany has been under pressure from its international partners to agree to an increase in the euro zone's firewall, with some countries like Britain making clear that without it, they will refuse to make additional funds available to the International Monetary Fund.
European leaders agreed last year to take another look at their firewall by the end of March and finance ministers are expected to discuss bolstering it at a meeting in Copenhagen later this week.
The EFSF still has approximately 240 billion euros in unused funds and government sources told Reuters that Berlin was prepared to accept that these be made available after the ESM was up and running in mid-2012.
Any unused funds remaining in the EFSF midway through 2013 would be cancelled, with the ESM remaining the sole fund capable of doling out new loans, the sources said.
Getting all the parties in Merkel's centre-right coalition on board for this solution could prove difficult however as it would likely lead to an increase in Berlin's guarantees to some 290 billion euros from 211 billion previously.
The head of the Bavarian Christian Social Union (CSU) Horst Seehofer said on Monday after Merkel had spoken that any increase above 211 billion euros remained a "red line" for him.
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