European policymakers and international bankers at the Davos forum said on Saturday the euro zone's debt crisis had turned a corner and any doubt about the survival of the single currency area had passed.

German Finance Minister Wolfgang Schaeuble told a World Economic Forum panel he did not expect the 17-nation euro zone to suffer any further major crises. Member states were drawing lessons and moving toward convergence in their economic and social policies.

I don't expect that there will be further major shocks, Schaeuble said. I think the euro will be stable.

French Economy Minister Christine Lagarde urged financial markets not to short-sell the euro zone, saying all countries were on the right path to fiscal consolidation. I think the euro zone has turned the corner, she told the same panel. Let's not short Europe and let's not short the euro zone.

Bankers voiced confidence that European Union leaders would take decisive steps in the coming weeks to support euro zone states in difficulty, coupled with tough austerity measures and structural economic reforms.

Barclays chief executive Bob Diamond, who spoke for major banks following their meeting with finance ministers and regulators earlier on Saturday, said the euro's survival was no longer in doubt.

The question of whether the euro is going to stay together is last year's issue and it's off the table, he said. We're still going to see some volatility but the big question of whether the euro is going to survive is off the table. EU leaders are aiming for a comprehensive package in March expected to include an increase in the lending power of their rescue fund and more flexibility in how it can be used, longer repayment periods and lower interest rates on bailout loans to Greece and Ireland, tougher fiscal discipline rules with better enforcement, and specific commitments to structural reforms.

Euro zone sources said on Friday a special summit could take place in early March.

DEBT BRAKE

Two euro zone sources told Reuters on Friday that German central bank chief Axel Weber had suggested extending the Greek and Irish rescue loans to 30 years from three and seven years respectively, which could help both countries avoid restructuring their debts to the private sector.

Germany is pushing its euro zone partners to adopt binding national fiscal rules similar to its debt brake constitutional amendment which forces the government to slash its deficit.

Diamond said he expected there would still be tension on bond markets because of the problems of individual euro zone countries, but there was no longer a systemic danger.

I don't think volatility in the markets has gone. But what was an acute issue a year ago is at worst a chronic issue today, he said, citing the political commitment from euro zone leaders to defend their currency.

British finance minister George Osborne, a euroskeptic whose government has vowed never to join the euro, said Europe was doing two out of three things right.

The euro zone themselves are working flat out on a permanent stability mechanism. The UK has a huge interest in seeing that succeed and we're contributing in terms of providing technical expertise, he told the same panel.

Individual countries are putting their own houses in order. Countries like Portugal and Spain are taking difficult decisions to address the problems, he added.

However, Osborne said the EU needed one more heave to drive forward further liberalization of its internal market and make Europe a more competitive place to do business.

Much of the debate on solutions to the euro zone crisis has focused on increasing the size and effective lending capacity of the 440 billion euro European Financial Stability Facility and giving it the power to buy sovereign bonds or give countries flexible credit lines before they lose access to credit markets.

Germany no longer appears to rule this out categorically but wants to focus the negotiation on its demands for tougher fiscal discipline and reforms of labor markets, pension and education systems.

In a newspaper interview released on Saturday, Schaeuble criticized talk of expanding the EFSF.

Those who focus the debate on this question prevents us from coming to a sustainable package solution, he said in advance excerpts of the Wirtschaftswoche business magazine.

It is not sensible to address the matter only in terms of whether the fund should be increased, or made so that its resources can be better deployed, he added.

Schaeuble and Chancellor Angela Merkel have in the past ruled out increasing the size of EFSF, wary in a year with seven regional German elections of alienating taxpayers fed up with being a backstop for the euro zone.

They are focusing instead on finding ways to maximize the full capacity of the EFSF, whose effective lending clout is really only about 250 billion euros because of the guarantee system required to maintain its triple-A credit rating.

(additional reporting by Michael Stott in Davos and Brian Rohan in Berlin; editing by Mike Peacock)

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