Q+A: Policy implications of German vote debacle

BERLIN (Reuters) - German Chancellor Angela Merkel is facing pressure from within her ruling coalition to review budget savings plans after party rebels forced a humiliating vote for the presidency.

The struggle to get Christian Wulff elected to the largely ceremonial post of head of state on Wednesday, when Merkel had a clear majority on paper, showed growing disenchantment with the leadership of her nine-month-old center-right alliance.

Less than two months ago voters punished the coalition in a state election, a result that deprived her of a majority in parliament's upper house after she angered many by agreeing to aid Greece.

Below are some questions and answers about the potential policy implications of the presidential vote debacle.

* WHAT IS LIKELY HAPPEN IMMEDIATELY?

The most immediate issue, and perhaps the only one to be tackled before parliament's nine-week summer break, is healthcare reform. The government needs to plug an 11-billion-euro funding gap in the system next year.

For months the three ruling parties have been debating a new financing system to prop up the ailing healthcare system (GKV) and put a new long-term financing structure in place.

Health Minister Philipp Roesler of the Free Democrats (FDP) wants to cut annual expenditure by 4 billion euros. Another 7 billion euros would have to be saved through additional financing. The FDP, junior partner in the coalition, wants to raise that with higher insurance fees, about 30 euros per person per month.

The Christian Social Union (CSU), Bavarian sister party of Merkel's Christian Democrats, has for the past eight months strongly opposed FDP efforts to introduce an across-the-board fee not based on the income of those insured. The CSU wants to focus on preventing healthcare costs from rising.

* WHAT DOES THE VOTE MEAN FOR THE PLANNED BUDGET CUTS?

Members of Merkel's conservatives have pressed her to tone down plans for 80 billion euros in budget cuts over the next four years. Many want planned cuts to welfare spending, which would account for the biggest chunk of consolidation, to be eased. In particular, Merkel's allies want the government to drop plans to axe parental support payments for families on unemployment benefit.

This means the extent of the savings will probably be reduced. Economists had already said the headline figure was exaggerated, putting the actual savings at between 27 billion and 33 billion euros through 2014. That figure may well shrink further now.

* WHAT ABOUT GERMANY'S ROLE IN THE EURO ZONE CRISIS?

Merkel's government is severely weakened by the presidential vote and political analysts question whether it will last until the end of its term in 2013.

This means Merkel can ill afford further action to aid euro zone peers, having already agreed to bail out Greece and contribute to a euro zone safety net.

Merkel faces five more state elections in 2011 and, after popular discontent with the Greek aid, will have to keep an eye on her domestic audience.

Given Germany's central role in responding to the euro zone debt crisis, economists say this could have detrimental spill-over effects for the euro zone.

* ARE TAX CUTS OFF THE AGENDA NOW?

Some conservatives have already criticized a reduced value added tax rate for hotels which was introduced at the start of this year.

The cut was seen as a sop to business allies of the FDP and some in the coalition ranks want it abolished. Before the presidential vote, senior FDP officials pressed for the government to stick to its plans to cut taxes for middle income wage earners before 2013.

However, conservatives now want the government to take a more equitable policy approach and the prospect of tax cuts will diminish further if the budget savings plans are scaled down.

(Writing by Paul Carrel and Erik Kirschbaum; editing by Andrew Dobbie)