By Annika Breidthardt
BERLIN (Reuters) - Germany strongly rejected mounting calls for the euro zone to issue joint debt at the weekend, but signaled it was open for the bloc to move toward a form of fiscal union, with the finance minister saying he personally supported a European counterpart.
"Euro bonds are exactly the wrong answer to the current crisis," German Chancellor Angela Merkel told ZDF public broadcaster in an interview on Sunday. "They lead us to a debt union and not to a stability union," she added.
Germany, which enjoys lower costs for issuing debt than its single currency partners, has led resistance to common euro-denominated bonds.
That puts it at odds with a number of partners, including Belgium and Italy, and the European Commission, which this week said it was still studying the feasibility of such bonds and may present draft legislation for them.
Merkel's comments on Sunday chimed with those of her finance minister earlier this weekend. Wolfgang Schaeuble said the euro zone could only issue joint debt if it had common fiscal policy or risk creating inflation and destabilizing the currency bloc.
Pressure on Germany and France to take radical action on the debt crisis mounted this week as financial markets sagged further and Belgium added its support to calls for the region to issue euro bonds.
Merkel said the solution to the current crisis was in closer economic cooperation in Europe and especially in the euro zone.
"The euro zone has to work even more closely together but we also have to work together closely within the Europe of 27," she said. "Our currency is not substantiated by a political union. Now the task is to make the euro strong through more economic cooperation and especially more commitment."
READY FOR EUROPEAN MINISTER
In line with that Schaeuble said in a newspaper interview he still had hope the euro could lead to a political union.
He was personally prepared to pass national sovereignty to Brussels to secure the long-term stability of the euro zone but conceded that the currency bloc was not ready for it yet.
"As a private person, Wolfgang Schaeuble would already be ready to (delegate sovereignty to Brussels). I have no problem with the idea of a European finance minister," he told Welt am Sonntag newspaper published on Sunday.
"But as a finance minister I say: it is our task here and now to solve the problems as quickly as possible based on the existing contracts."
Some EU experts say it would be a long drawn-out process -- not least to address the legal issues -- to change EU laws to allow a finance minister to have influence over national budgets or for the bloc to issue common debt, and it would take too long to help in this crisis.
Blessing also said a bundle of crisis measures proposed by Merkel and her French counterpart Nicolas Sarkozy this week were not enough.
One of those measures, which Schaeuble and his French counterpart Francois Baroin will discuss next week, is a EU-wide financial transaction tax, which Schaeuble would be willing to limit to the euro zone if it did not get the support of the entire bloc.
However, that has come under fierce criticism, with Merkel's junior coalition partners the Free Democrats saying they will only support the tax if it is EU wide, not euro-wide.
The German banking association says the tax is inefficient as it would prompt professional traders to simply avoid trading within the zone, while the association of savings bank supported the tax, saying it would hit in particular speculative trades.
Schaeuble also said the European Financial Stability Facility did not need to be expanded once it buys back sovereign bonds of troubled member states.
"As soon as it is clear that the euro zone members defend the euro, there will be less speculation," Schaeuble said. "Therefore there will be fewer bond purchases and the necessary sums will sink."
NO RECESSION IN SIGHT
Germany has been Europe's star performer in industrialized world since the end of the 2008 financial crisis and its swift recovery has helped stimulate European trade partners.
However, even its economy has now slowed, growing by 0.1 percent in the second quarter of the year, but Merkel tried to assuage worries that momentum in Europe's largest economy could slow even further.
"I believe we have the chance to continue the path of a pickup," she told ZDF. "I can only say I see nothing that points toward a recession in Germany."
(Reporting by Annika Breidthardt; Editing by Hans-Juergen Peters)