Merkel deflects pressure to boost euro bailout funds

By Erik Kirschbaum

BERLIN (Reuters) - Chancellor Angela Merkel tried to deflect growing international pressure on Germany to agree an increase in the euro zone's bailout funds Sunday by saying talks were still continuing.

Amid calls to raise the size of the permanent European Stability Mechanism (ESM) ahead of an EU summit Monday, Merkel was asked by Bild am Sonntag newspaper about "rising pressure" on Germany to "massively increase" the bailout fund.

But the chancellor did not address the issue of whether Germany would back raising the ESM and instead answered a question about what impact increasing the ESM might have on the German budget this year.

"The negotiations are continuing on whether we'll pay in our contribution in one tranche or two tranches," said Merkel, who has resisted calls for Germany to back increasing the bailout funds in part due to opposition in her center-right coalition.

"But independent of all that, our deficit level as far as the European Stability Pact is concerned will not be increased as a result because the money won't be gone. It's only to be transferred from the federal budget to the ESM."

Merkel is keen to avoid the EU summit being sidetracked by debate about whether extra funding should be funneled into the euro zone bailout funds, as the International Monetary Fund and some euro states -- including Italy and Spain -- have suggested.

A close Merkel ally in parliament, Peter Altmaier, said it made sense to first see how effective the ESM is.

"It would be good if we make good use of the amounts that are now available," Altmaier, a senior MP, told German radio.