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Merkel says euro zone crisis far from over

File photo of Germany's Chancellor Angela Merkel arriving at the European Union (EU) council headquarters for an EU leaders summit in Brusse
File photo of Germany's Chancellor Angela Merkel arriving at the European Union (EU) council headquarters for an EU leaders summit in Brusse

BERLIN (Reuters) - The euro zone sovereign debt crisis is far from over even though reform measures designed to address the roots of the problem are beginning to bear fruit, German Chancellor Angela Merkel has said in her New Year's address.

In a taped interview to be broadcast on Monday evening, Merkel urged Germans to be more patient even though the euro zone crisis has already dragged on for three years. She drew a line linking German prosperity to a prosperous European Union.

"For our prosperity and our solidarity we need to strike the right balance," Merkel said. "The European sovereign debt crisis shows how important this balance is.

"The reforms that we've introduced are beginning to have an impact," she said. "Nevertheless we need to have further continued patience. The crisis is far from over."

Merkel indirectly contradicted Finance Minister Wolfgang Schaeuble with those comments. In an interview on Friday in Bild newspaper Schaeuble said the worst of the crisis was over.

Germany has been the paymaster in the euro zone crisis, to the chagrin of many German voters and a growing bloc of conservative lawmakers in Merkel's coalition. Germans remain wary of euro zone bailout efforts but give Merkel high marks for what they consider to be her judicious handling of the crisis.

Merkel, who is seeking a third term in an election in September, proudly pointed out that unemployment in Germany had fallen to its lowest level since reunification in 1990 while the number of people employed had also risen to record highs.

"That means that many hundreds of thousands of families have a secure future," said Merkel. "And that means that a lot of young people have the security of training and jobs and thus will get off to a good start in their careers."

But in face of slowing economic growth, Merkel also warned that conditions could be more difficult in 2013 than in 2012.

"I know that many people are naturally concerned going into the new year," she said. "And the economic environment will not in fact be easier but rather more difficult next year. But we shouldn't let that get us down; rather it should spur us on."

Even though Merkel's conservative party holds a commanding 10-point lead in opinion polls over the Social Democrats (SPD), the center-left opposition SPD and their Greens allies have a chance of taking power because Merkel's coalition allies, the Free Democrats (FDP) have slumped badly and may not win seats.

Political analysts believe Merkel nevertheless still has the most options to form a government after the vote. She could lead a right-left grand coalition with the SPD as she did from 2005 to 2009 or a coalition with the pro-environment Greens party.

Merkel said she hoped there would be more controls next year on international financial markets - a popular issue in Germany that the SPD is planning to make a central plank of its 2013 election campaign.

"The world hasn't sufficiently learned the lessons of the devastating 2008 financial crisis," she said. "Never again can we allow irresponsibility like back then to happen. In a social market economy, the state is the guardian of order - and that is something people should be able to count on."

(Reporting By Erik Kirschbaum; Editing by Robin Pomeroy)

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