UPDATE 1-Germany must invest to secure growth prospects - ECB's Asmussen
* Quick agreement on new German government needed for Europe
* Bank supervision, resolution should start roughly at same time
* ECB's OMT programme still ready to be activated if needed
* Italy so far does not qualify for OMT
By Gernot Heller
POTSDAM, Oct 7 (Reuters) - Germany must boost investment to secure its growth prospects, the German member of the European Central Bank's Executive Board said on Monday, while urging his country's leaders to form a government soon to enable progress on European integration.
Joerg Asmussen also said Germany should broaden its solidarity pact, under which state and local governments in west provide funds for rebuilding the former Communist east, to cover the whole country when it expires in 2019.
"There are a number of scientific studies that show that Germany has underinvested," Asmussen told a savings bank conference in Potsdam.
"If the impression arises internationally that we are unable to build airports or train stations, then of course we have a problem."
Asmussen said the euro zone crisis and progress on Europe's planned banking union would be among the main talking points at the autumn meeting of the International Monetary Fund in Washington that he is due to attend this week.
Work on that project slowed in the run up to Germany's federal election in September, and Asmussen said a quick agreement to form a new government was needed to avoid further delays in crucial decisions for European integration.
"Swift formation of a government would certainly be helpful from a European point of view as there are important decisions to be taken for Europe, for example on banking union," Asmussen said in a written response to Reuters' questions.
Time was short ahead of the European Parliament elections next year, he said.
German Chancellor Angela Merkel's conservatives are searching for a coalition partner, either the Social Democrats (SPD) or the Greens, to secure a third term in office.
Asmussen, a former deputy finance minister, is a member of the SPD and has been tipped as a possible finance minister in a grand coalition, although he has never held political office.
He has repeatedly said he will serve his full eight-year term at the ECB until the end of 2019.
Europe's most pressing decision now was to agree by December on a common mechanism to wind down or restore ailing euro zone banks, he said, adding that this timetable was "ambitious, but manageable".
The ECB is particularly interested in having a single resolution mechanism in place by the time it starts supervising euro zone banks from late next year.
"Without doubt it is preferable for common European supervision and the common European resolution to start roughly at the same time," he said in answer to Reuters' questions.
EMERGING FROM CRISIS
Asmussen said the euro zone's international partners recognised the bloc had made progress on emerging from the crisis. Spain was set to complete its bailout programme by the end of the year and probably Ireland as well, he said.
It remained to be seen whether Portugal could again tap financial markets like it did earlier this year, following a government crisis this summer, he said.
If Greece was not able to regain sufficient market access by the second half of next year, additional aid would be needed, as agreed in November last year, Asmussen said.
He reiterated that the ECB's Outright Monetary Transactions (OMT) bond-buying programme was still ready for use once preconditions were met, which was not the case for Italy.
"I would also like to point out that the OMT programme aims to counter unjustified fears about a breakup of the euro zone, rather than justified concerns about the functional capability of a political system," Asmussen said.
Italy's main problem is low growth potential, and Asmussen urged the country to continue with its budget consolidation.
Asmussen also commented on domestic policy in Europe's largest economy, saying structural help - through the post-reunification solidarity pact - should in future be extended not just to the former Communist East.
"It's my conviction that no follow-up solution should and can be found that is linked to regions again, because we already have a range of communities in North Rhine-Westphalia where the traffic infrastructure is simply worse than in several parts of the new federal states," Asmussen said.
North Rhine-Westphalia is Germany's most populous federal state. The opposition SPD, which has a stronghold there, has voiced scepticism about forming a coalition with Merkel's conservatives.
A high-debt and in parts high-unemployment state, the rust-belt region could benefit from changing the solidarity pact.
"A follow-up solution, in my view, will have to be a solidarity pact for the whole country, for structurally weak regions in East and West Germany," Asmussen said.
He also weighed in on another hotly debated topic in coalition talks - the possible introduction of a minimum wage.
In contrast to his German colleague on the ECB Governing Council, Bundesbank Chief Jens Weidmann, Asmussen said he was in favour of a minimum wage for Germany, noting that 21 other European Union member states already had one.
"I think implementing this would also be useful for Germany because a third of employees were not covered by wage agreements and the low-pay sector has risen to about a fifth of employees," Asmussen said.
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