German parties reject Merkel timeline on fiscal pact

Tue Mar 27, 2012 10:06am EDT

Related Topics

* SPD, Greens want to delay vote on fiscal pact

* Merkel needs two-thirds majority in parliament

* Coalition parties get behind firewall boost

By Noah Barkin and Matthias Sobolewski

BERLIN, March 27 (Reuters) - Germany's main opposition parties rejected on Tuesday plans by Chancellor Angela Merkel's government to push a European pact on budget discipline through parliament by June, saying more time was needed to complement it with measures to bolster growth.

The pact, which aims to enshrine German-style fiscal rules across 25 EU countries, requires a two-thirds majority in parliament to pass, meaning Merkel is dependent on the opposition.

The chancellor's original plan was to link the vote on the pact to legislation authorising Europe's new bailout facility, the European Stability Mechanism (ESM), with both going to the Bundestag lower house of parliament in May and the Bundesrat upper house in June.

But opposition parties argue that Merkel has focused too much on consolidating euro zone finances and not enough on getting struggling countries such as Greece out of deep multi-year recessions. They are pushing for additional growth-friendly policies as a condition for approving the pact.

The Social Democrats (SPD) and Greens reacted angrily to comments by Merkel's finance minister, Wolfgang Schaeuble, on Monday evening where he effectively ruled out the introduction of a financial transaction tax in the euro zone because of opposition from other member states.

Both parties want such a tax to help finance growth-boosting measures. They made clear on Monday that they did not consider the transaction tax to be dead and saw no reason to approve the fiscal pact according to the government's timeline.

"We think the pact needs to be complemented by a serious initiative to tax financial transactions and strengthen growth in Europe," Greens leader Juergen Trittin told Reuters after a meeting of parliamentary leaders with Schaeuble.

"The pact needs to be approved by the end of the year. We don't see any need to put this before parliament in May."

SPD parliamentary leader Frank-Walter Steinmeier, a possible challenger to Merkel in next year's federal election, also spoke of a delay, calling the government's timeline overly ambitious.

Their readiness to stand up to the government could herald a more confrontational approach in the run-up to two key state elections in May and the federal vote next year, in which Merkel is widely expected to seek a third term.

FRENCH ELECTION

German opposition parties and the Socialist frontrunner in the French election, Francois Hollande, are all demanding steps to bolster growth. Hollande has vowed to renegotiate the fiscal pact if he defeats President Nicolas Sarkozy in the two-round vote in April and May, although he has appeared to soften his stance in recent weeks.

Growth-boosting measures could include so-called "project bonds", possibly issued by the European Investment Bank, to fund infrastructure projects in struggling euro zone states.

The German parties also want to use revenues from a financial transaction tax to fund projects. Schaeuble said on Monday that it would be impossible to implement such a tax in the euro zone, let alone the broader EU.

He suggested that an enhanced stamp tax that covered derivatives might be workable in the single currency bloc and some additional EU countries.

Opposition parties have also criticised Merkel for not being honest about an increase in the euro zone's firewall for supporting struggling member states.

On Monday Merkel signalled for the first time that she would be open to boosting bailout resources by allowing the ESM and the fund it will replace, the European Financial Stability Facility (EFSF), to run in parallel.

In addition to the 200 billion euros already committed to Greece, Ireland and Portugal under the EFSF, unused funds in the facility of 240 billion euros would remain available until mid-2013, German officials told Reuters.

On top of that would come the 500 billion euro ESM, which is to become operational this summer. The ESM is due to have a lending capacity of 200 billion euros in its first year of operation, gradually building up to its ceiling.

The shift in the German stance will mean that its guarantees will rise from 211 billion euros to roughly 290 billion, a step some of the parties in Merkel's coalition had previously said they would not accept.

But Merkel appears to have won their backing for the move, which Germany hopes will convince international partners like Britain to step up their contributions to the International Monetary Fund (IMF) and give the bloc more protection against possible contagion to big countries like Italy and Spain.

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