Bonds News

CORRECTED - UPDATE 1-Euro crisis could help boost political union-Merkel

* Merkel says Europe facing “existential test” it must pass

* Says crisis chance to boost political union, not just euro

* German leader sees all EU members one day joining eurozone

(Corrects number of years in paragraph 4 from 35 to 53)

By Brian Rohan

BERLIN, May 13 (Reuters) - German Chancellor Angela Merkel said on Thursday the euro’s troubles offered a chance for the EU to strengthen its economic and political union, not just its common currency.

Speaking at a ceremony in Aachen where Polish Prime Minister Donald Tusk was awarded the Charlemagne Prize for furthering European unity, Merkel said the future of the EU was at stake in the challenges to its monetary amalgamation.

“If the euro fails, not only the currency fails. Europe fails too, and the idea of European unification. We have a common currency, but no common political and economic union. And this is exactly what we must change. To achieve this -- therein lies the opportunity of this crisis.”

In a speech broadcast live on WDR television, Merkel said the crisis over the euro’s future was “not just any crisis, it is the strongest test Europe has faced since 1990, if not in the 53 years since the treaties of Rome.”

“This test is existential -- it must be passed. If it does not manage to (do that), the consequences for Europe and beyond are unforeseeable,” the conservative Christian Democrat said.

Greece’s debt emergency and a worsening deficit crunch in Spain, Portugal and Ireland have eroded the euro’s strength.

But Merkel held off on backing a 110-billion-euro ($139.7 billion) bailout for Greece until it was clear contagion was starting to afflict the euro zone, dismaying France over the delay. Germany and France had long been the twin engines of EU integration.


In the decade since the euro was created, Germany has resisted the idea of tightening economic policy coordination, fearful states like France could exploit such a discussion to try to exert influence over the European Central Bank.

Germany was also concerned that its export-reliant economic model could come under fire from EU partners that want Germany to do more to boost long-stagnant domestic demand.

But the contagion crisis has forced Merkel to drop her resistance to closer coordination, inviting recognition that it is the price Germany must pay to win agreement from other EU members to a radical strengthening of the EU’s Stability and Growth Pact that Berlin wants.

Both the euro and European sovereign debt have seen erratic swings in their value over the past weeks as leaders agreed massive financial aid packages first to bail out debt-laden Greece, then to buttress the entire euro zone.

The latest step, taken last weekend, saw policymakers from the European Central Bank deciding to buy euro zone government bonds on the open market in a move welcomed by economists and investors as bringing calm to markets.

In a sign the programmes were working, investors were attracted to the European stock market, where shares rose for a second straight session to a one-week high on Thursday, also helped by soothing company results in recent days.

But the euro retreated against the dollar on Thursday, nearing a 14-month low as concerns rise about the potential impact from the harsh austerity steps to be imposed in some countries as part of the euro zone emergency aid plan.

Merkel was confident that Europe would overcome the crisis in her speech in Aachen, a western German city that was for centuries the place of coronation of German kings.

“The euro is more than just our currency. It is the furthest achievement of European integration so far. It stands for the European ideal. And I stick to my vision that one day, all EU member states will also have the euro as a currency,” she said.