Banker's resignation greeted with relief in Berlin

German central bank executive Thilo Sarrazin attends a public reading to present his book 'Deutschland schafft sich ab' (Germany does away with itself) in Potsdam, September 9, 2010.

BERLIN (Reuters) - Germany's political establishment voiced relief on Friday after the resignation of central banker Thilo Sarrazin, who has inflamed the country with outspoken comments on race and religion.

Sarrazin said he would quit the Bundesbank's board from the end of September after his comments on Muslim immigrants and Jewish genes drew censure from Chancellor Angela Merkel on down and prompted the central bank to seek his dismissal.

His resignation, announced late on Thursday, means President Christian Wulff will no longer have to decide whether to approve the bank's request, an awkward choice that threatened to expose Merkel to a backlash from conservative voters.

Wulff, nominated by Merkel's Christian Democrats (CDU), said through his spokesman he welcomed Sarrazin's decision and the "mutual solution that had been found with the Bundesbank."

Sarrazin, 65, has dominated headlines over the past fortnight for his trenchant criticism of Turkish and Arab immigrants, some of which he set out in a new bestselling book "Deutschland schafft sich ab" (Germany does away with itself).

Newspaper Financial Times Deutschland wrote "Sarrazin does away with himself" -- a play on the title of his book.

"Sarrazin thus saves himself and Germany a demoralizing legal battle over his sacking. Wulff will be spared a very tricky decision -- whether or not to sign off on it," it wrote.

Sarrazin's center-left Social Democrats (SPD) have begun proceedings to expel him, though the economist has said he aims to "go to his grave" a member of the party. Polls show the SPD has been hurt by the debate over whether to eject him.

Sebastian Edathy, an SPD member of parliament's legal affairs committee, told Reuters it had been high time for Sarrazin to resign.

"If he made the decision because he saw the light, then the obvious next thing to do would be to leave the SPD," he said. Sarrazin, a former finance minister of the city of Berlin has long been outspoken, but recent claims that Jews shared a particular gene and Muslim immigrants were lowering the intelligence quotient of German society proved a tipping point.

"Was it a courageous and responsible step by Sarrazin? Yes. But at the same time this is a sad reflection on the culture of holding open debate in Germany," mass-selling daily Bild wrote.

Right-wing online forums have hailed Sarrazin as a champion of free speech who participants say is speaking painful truths.

Advocates of improving immigrant integration say Sarrazin has made it harder to hold an objective debate on the matter by polarizing opinion and obscuring the facts with disputed claims.

(Additional reporting by Erik Kirschbaum, editing by Paul Taylor)