Merkel torn by conflicting pressures in Greek vote

BERLIN Mon Feb 27, 2012 9:51am EST

German Chancellor Angela Merkel looks around during a guided walking tour of the northern German city of Stralsund February 24, 2012.  REUTERS/Morris Mac Matzen

German Chancellor Angela Merkel looks around during a guided walking tour of the northern German city of Stralsund February 24, 2012.

Credit: Reuters/Morris Mac Matzen

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BERLIN (Reuters) - Germany's parliament was almost certain to endorse a second Greek bailout on Monday but Chancellor Angela Merkel was torn between domestic pressure to stop throwing good money after bad and global calls to boost Europe's crisis defenses.

The world's leading economies in the G20 piled pressure on Berlin at the weekend to drop opposition to a bigger European bailout fund, telling Europe it must put up extra money if it wanted more help from other countries.

European Commission President Jose Manuel Barroso added his voice on Monday, saying he expected a decision on strengthening the euro zone's financial firewall during March, although not yet at an EU summit on Thursday and Friday.

But Merkel, whose country provides the lion's share of the emergency funds, first faces a tough vote in the Bundestag (lower house), which may force her to rely on the opposition to pass a 130-billion-euro ($175 billion) rescue program for Greece, its second since 2010.

"Billions for Greece -- Stop!" Germany's best-selling newspaper Bild screamed across its front page.

"Don't go any further along this crazy path," it said, quoting leading economists who argue Greece would do better to default on its huge pile of sovereign debt and temporarily leaving the single currency.

Merkel will face a determined band of rebels from her own coalition when she opens the debate in the Bundestag at 3 p.m. (1400 GMT). The vote will take place a few hours later.

"We are confident we will get our own majority in today's vote," said her spokesman Steffen Seibert, when asked about the likelihood that at least a dozen MPs from her centre-right coalition will vote against the rescue package.

If the number of rebels rises to at least 20, the bill will pass thanks to the support pledged by the centre-left opposition Social Democrats (SPD) and Greens.

That would be a humiliation for Merkel, raising doubts about her ability to cope with demands for more emergency funding for the euro zone and about her coalition's survival until elections due in 2013, when she is expected to seek a third term.

Facing huge domestic pressure to make sure Germany's euro zone partners only get aid in return for tough fiscal reforms - which Greece has failed to deliver - Berlin has sent conflicting signals on whether it will soften its stance.

Finance Minister Wolfgang Schaeuble, meeting G20 colleagues in Mexico this weekend, appeared open to merging the euro zone's temporary and permanent bailout funds to create a 750 billion euro ($1 trillion) war chest. This would open the door to extra International Monetary Fund (IMF) support as well.

But an official close to Merkel stuck to Berlin's official position that the "firewall" already has enough funding.

GERMANS LOSING PATIENCE

Merkel's position is driven partly by public opinion and unease within her centre-right coalition, but also by a feeling in Berlin that market pressures are easing and there is no longer an urgent need to put up more money.

In fresh signs that the European Central Bank's move to flood banks with cheap three-year liquidity has helped bond markets, Italy and Belgium saw their borrowing costs sharply reduced at debt auctions on Monday.

An opinion poll published in a Sunday newspaper found 62 percent of Germans were against the second Greek rescue package while 33 percent were in favor. In a similar poll in September, 53 percent had been opposed and 43 percent in favor.

Interior Minister Hans-Peter Friedrich openly called on Greece to leave the euro zone, saying in a magazine interview its chances of recovery would be greater outside. It was the first time a member of Merkel's cabinet had publicly broken ranks on the issue.

Seibert said the chancellor rejected this stance, which came from a minister belonging to one of her two smaller allies which often take a more euroskeptic stance than her Christian Democrats (CDU).

"The chancellor's firm conviction about the right thing to do regarding Greece is clearly expressed in the bill going to the Bundestag today," said Seibert.

Merkel needs 311 votes to reach a majority in the 620-member house. Her coalition holds 330 seats.

In a nail-biting September 27 vote on the European Financial Stability Facility (EFSF), 15 deputies in her coalition broke ranks, leaving her with a narrow majority of 315 seats on that occasion.

One of the dissidents from Merkel's CDU, Klaus-Peter Willsch, told Reuters on Sunday that "the mood in Germany is turning against further rescues for Greece.

"We've been promised all kinds of things that aren't fulfilled and then a few months later there's the need for another rescue package. The public's faith is fading fast."

Germans are growing impatient with what Schaeuble has described as a "bottomless pit" in Greece.

At the same time, there is a growing awareness in Germany, Europe's leading economy, that its own prosperity is at risk as the debt crisis sucks in more countries and stifles demand within the currency bloc for German exports.

German criticism of Greece has reopened wounds dating from World War Two. Protesters in Athens burned a German flag earlier this month while Greek newspapers have portrayed Merkel and Schaeuble in Nazi uniform.

Despite riding high in polls, Merkel has hit a rough patch - about 18 months before the next election - that has raised doubts about her grip on power.

Merkel is opposed to Greece leaving the euro zone, but her allies in Bavaria's Christian Social Union (CSU) - including the interior minister - and the Free Democrats (FDP) face difficult state votes this year and next, and have been raising the volume on cutting off aid for Greece or pushing it out of the euro.

(Additional reporting by Alice Baghdjian and Erik Kirschbaum; Editing by Paul Taylor)

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