Euro zone leaders will not decide much at Friday's summit on the bloc's debt crisis but a compromise deal is likely at the end of the month, a coalition ally of German Chancellor Angela Merkel said on Thursday.

Otto Fricke, a budget expert with the Free Democrats (FDP), was open to European aid loans possibly being extended and their interest rates lowered if recipient countries showed a willingness to meet German demands on fiscal discipline.

The FDP, junior party in the ruling coalition with Merkel's conservatives, has led calls from within the government ranks to take a hard line in crunch talks on Friday and later this month on the euro zone crisis.

Fricke said he would like to see other euro zone countries implementing a German-style debt-brake, a measure that effectively forces the government in Berlin to reduce the gap between its revenue and spending.

If we get something like that on the European level, in the countries, that would be of a huge help, he told Reuters Insider television.

Then it could be a compromise that we prolong, that we maybe change interest rates a little bit, but once again it has to be shown from the other side too that there is movement.

Fricke co-authored a motion backed by government lawmakers last month that sought to ban buybacks by the European Stabilisation Mechanism (ESM) when it replaces the temporary EFSF fund in 2013.

We don't want that especially because we don't want a solution where Germany is the one paying because it's the one big AAA guy, he said of such buybacks. We have to share our burdens within Europe but not as the only one.

Earlier on Thursday, a senior German official said Berlin opposes using Europe's rescue fund to facilitate purchases of euro member bonds on the secondary market, whether directly or indirectly.

Leaders of the 17-nation currency area are expected to back a watered-down version of a German-French plan to boost economic competitiveness at Friday's summit but are unlikely to overcome sharp differences over the size and scope of the rescue fund.

I think already the market has found out that there is not going to be that much decision (making) tomorrow, Fricke said.

On the prospects of a deal at a March 24/25 European summit, he added: I think there is going to be a result but a compromise from both sides.

Fricke was not keen on boosting the size of Europe's rescue fund: Why do we need more stability fund money?, he asked.

If there is no definite answer to that, if it is just 'we want more because ... higher numbers are better', then I don't think that Germany and Finland and the Netherlands will simply follow, which doesn't mean that if there is a good argument, if there are precise numbers it will be (seen) in a different way.

Germany's opposition has accused Merkel of acting tough on the euro zone crisis to win points in regional elections, though her aides say this is not the case.

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