UPDATE 1-Greece makes progress, but should get more chances-Merkel

Sat Oct 13, 2012 10:13am EDT

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BERLIN Oct 13 (Reuters) - German Chancellor Angela Merkel said on Saturday that Greece seemed to be making headway with its reforms and should stick to the agreements it had made, but added that the crisis-stricken country should continue to be given more chances.

"I have the impression that, step-by-step, we are beginning to see progress there. It's often slower than we had imagined, but on this front we should give Greece another chance time and again," she said in a weekly video podcast.

"On the one hand we should demand that the agreements on which we decided together are kept. But on the other hand we should, in our role as friends and partners, offer assistance and support."

Merkel said the German government was in close contact with Greece.

Earlier this week Merkel visited Greece for the first time since the euro zone crisis erupted three years ago and while she reaffirmed Berlin's commitment to keep Greece inside the euro zone, she offered no concrete relief ahead of a new report on Greece's reform progress due by next month.

Tens of thousands of angry Greek demonstrators filled the streets of Athens during the German leader's visit, but in a further sign of sympathy for the debt-crippled state's people, Merkel on Saturday defended their protests.

"To be honest I was quite relieved that I could go home, the people could protest and none of those who did so peacefully ended up in prison," she said at a regional Christian Democratic Union (CDU) party conference in the north German town of Celle.

She added that the right to demonstrate was very important to her because she had spent 34 years of her life in formerly communist East Germany where demonstrating was forbidden.

"Everyone should be able to express their opinion and then it will be discussed. That's democracy," she said.

MORE FAITH

Germany, Europe's largest economy, will defend the euro against the interests of international financial market players, many of whom care little for the success of Europe and are betting that the region does not have the political will to pull through, Merkel said, adding that this view was wrong.

Against the background of debates about fresh aid for struggling states like Spain, she called on her party to place more trust in Germany's euro zone peers.

"We have every reason to place our trust in others," she said, adding that France and the United States had done this for Germany after World War Two.

But she said trust could only develop if countries all stick to their agreements.

"We promised too much, decided too much and never stuck to it," she said, adding that this needed to change.

Euro zone officials said on Saturday that Spain could ask for financial aid from the euro zone next month and if it does the request would likely be dealt with alongside a revised loan programme for Greece and a bailout for Cyprus in one big package.

Asked in the video podcast if a European Union in which an increasing number of member states ask for financial aid was sustainable, she said: "No of course not. It would be wrong if things were to stay like this but now the markets are also testing if we will stay together."

Merkel said she was against turning the EU into a federal system like the United States: "I don't think we should overstretch ourselves."

Merkel said the awarding of the Nobel Peace Prize to the EU on Friday provided motivation to further develop the union.

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