* Euro zone to heed expert view that banks need capital
* Banks should first try to fund themselves
* Discussed currency and capital flows with IMF, WB, OECD
(Adds IMF and OECD chiefs, quotes and details)
By Andreas Rinke and Sarah Marsh
BERLIN, Oct 6 German Chancellor Angela Merkel
said on Thursday Europe should not hesitate to recapitalise its
banks if this prevents greater economic damage, and leaders
would take very seriously expert advice that the time was ripe
for such a step.
She added banks should first tap markets to boost liquidity
and then turn to national governments and use the European
Financial Stability Facility (EFSF) as a last resort.
"The advice that we are receiving -- that European banks do
not have enough capital -- is to be taken very seriously,"
Merkel told a news conference in Berlin.
"The situation is such that we in the European Union must
take another look, and I believe that if it is necessary, and it
is a reasonable investment, we should not hesitate because
otherwise the damage that results is of a much higher order."
"The EFSF is a facility which provides assistance at a point
when a country would threaten the stability of the euro and euro
zone as a whole, so a strict conditionality comes into play, and
under specific conditions countries receive aid."
Merkel was speaking after talks with the heads of the
International Monetary Fund, the World Bank, and OECD in Berlin,
on reform of the global currency system.
Asked if the IMF had more funds available to direct towards
struggling economies, IMF Managing Director Christine Lagarde
said: "If you ask a fund do you have enough resources and are
you prepared to give more, I will say, 'I want more'. Having
said that, we do have resources available."
Merkel said the group had discussed the need for greater
regulation of markets and economies by the IMF, how to create a
framework to cope with increased global capital flows and the
need for a common understanding of when to impose capital
controls, which should be a last resort.
She added she expected progress at the Group of 20 nations
meeting in Cannes next month, but work would remain after that
OECD chief Angel Gurria said the focus on capital flows was
important because transfer of funds from wealthy countries to
the developing world was fuelling "property bubbles and stock
market bubbles" which in turn drive an appreciation of the local
currency -- "the most serious problem of all".
"This is not in small countries, this is in countries like
Mexico, Chile, India or Korea and others which are fighting very
hard for their own competitiveness," he said.
Lagarde said another focus was on efforts to expand the
basket of currencies that makes up so-called Special Drawing
Rights (SDR), the International Monetary Fund's unit of account,
to include China's renminbi currency.
Advanced economies have set the condition that the renminbi
has to be convertible to join and China has no timetable for
announcing such full convertibility.
(Additional reporting by Stephen Brown and Brian Rohan; Writing
by Alexandra Hudson)