German SPD ups pressure on Merkel with growth call

BERLIN Thu May 24, 2012 9:02am EDT

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BERLIN (Reuters) - Europe's new fiscal pact must emphasize growth as well as austerity, Germany's main opposition party said on Thursday, echoing French calls for a shift in strategy before a meeting at which Chancellor Angela Merkel will ask it to back the plan.

The Social Democrats (SPD) have already threatened to embarrass Merkel by delaying a vote on the deal, designed to cement budget discipline within the crisis-hit euro zone. Germany's leader wants to push legislation through parliament on the fiscal pact and the European Stability Mechanism (ESM) bailout fund before the summer recess.

But invigorated by the election of Socialist President Francois Hollande in France, the German centre left is pushing for initiatives to boost employment and growth before it will commit to the pact.

"Mrs Merkel must significantly change her financial and economic policies for Europe if she wants to get the fiscal compact ratified," said SPD chairman Sigmar Gabriel.

He also said Merkel had to give up her blanket rejection of joint euro zone debt issuance, or euro bonds.

Gabriel signaled, however, that his party, which has until now backed Merkel on euro zone policies, would not torpedo the pact, and risk being blamed for plunging the euro zone deeper into crisis.

"Of course we will have nothing against the fiscal pact if a growth pact accompanies it," he said.

Merkel is looking increasingly vulnerable on the euro zone crisis due to a backlash by voters in Greece and France against her austerity drive. Hollande's May 6 election victory has shifted the debate in Europe, with other leaders rallying around his call for a new emphasis on growth alongside debt-cutting.

Opinion polls in Germany, where voters broadly back Merkel's insistence on strict reforms in return for bailouts, point to a decline in her party's popularity and rising support for the SPD ahead of next year's federal election.

MERKEL NEEDS OPPOSITION

Merkel meets the heads of Germany's parliamentary parties on Thursday in a bid to get them on board for the two votes. She fears a delay to approving the pact on budget discipline in Germany would send a disastrous signal to the euro zone.

Merkel requires the support of opposition parties for a two-thirds majority in parliament for the fiscal pact. The SPD and Greens want initiatives to boost output and jobs which Gabriel says could be funded by a European financial transactions tax.

Senior Greens politician Juergen Trittin urged Merkel to abandon her drive for austerity. Some Greens even want a special party conference to vote on the fiscal pact.

"Germany is isolated in Europe ... and this isolation is dangerous for a country that lives from exports," he said.

The SPD's budget spokesman also called on Merkel to push for a German to take over the leadership of the ESM, due to start work in July, instead of trying to secure the chairmanship of the Eurogroup of finance ministers of the currency zone.

Handelsblatt Online quoted the SPD's Carsten Schneider as saying Klaus Regling was well-qualified to take over at the ESM after his stint as head of the temporary bailout fund, or European Financial Stability Facility (EFSF).

Finance Minister Wolfgang Schaeuble has been mentioned as a possible successor to Jean-Claude Juncker as Eurogroup head, but some countries are wary of having a German in the post because of Merkel's austerity focus and Berlin's already huge influence.

"It is important that Germany asserts itself in terms of staffing at the top of the ESM," Schneider told the paper.

Many Germans, angry at paying most toward bailouts of struggling euro zone states, like the idea of a German taking charge of the ESM, thinking this will protect their interests.

(Reporting by Madeline Chambers; Editing by Catherine Evans)

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