Merkel faces tough sell at home over Spanish aid

BERLIN Mon Jun 11, 2012 8:59am EDT

German Chancellor and Christian Democratic Union (CDU) party leader Angela Merkel reacts before a party board meeting in Berlin, June 11, 2012. REUTERS/Fabrizio Bensch

German Chancellor and Christian Democratic Union (CDU) party leader Angela Merkel reacts before a party board meeting in Berlin, June 11, 2012.

Credit: Reuters/Fabrizio Bensch

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BERLIN (Reuters) - Angela Merkel's government was forced to defend an EU rescue for Spain's indebted banks on Monday, with many Germans convinced their generosity is being abused and skeptics warning that promising aid without tough conditions sets a risky precedent.

Aides to the German chancellor justified the huge bailout on the grounds that the Spanish economy was not in such dire shape that it required the kind of terms imposed on Greece, and the aid would not be paid directly to Spanish banks but to the government.

"The Spanish application comes from the state, the money will go to the state, the state is liable and the state takes on the responsibility for the stipulated conditions," Merkel's spokesman Steffen Seibert said.

"It sends a good signal to the markets and Europe's partners that Europe is capable of acting and now has the instruments at its disposal to deal with crisis events that it did not have two or three years ago," said Seibert.

But opinion polls reflect growing fatigue among ordinary Germans at their country's role as paymaster in the euro zone sovereign debt crisis.

The scale of aid made available to Spain - up to 100 billion euros ($125 billion) - appeared to reinforce warnings from a small but growing band of German eurosceptics that such bailouts have become a black hole for German taxpayers' hard-earned cash.

The mass-circulation Bild tabloid warned that, just as one bailout package was not enough for Greece, "the Spanish patient will also need more help than a one-off capital injection".

"Is 100 billion euros for Spain really going to be enough, Herr Schaeuble?" it asked the German finance minister.

The Mitteldeutsche Zeitung called it a costly "sedative" and highbrow Die Welt expressed similar doubts that the Spanish aid would stop the rot in the euro zone, despite a positive initial response in financial markets.

"Politicians are once again showing such great optimism that they are closer to solving the problems that the citizens, most of whom have already become skeptics, are even more suspicious," Die Welt wrote.

The Frankfurter Allgemeine Zeitung said it was a dangerous precedent to drop Germany's insistence on aid only with strict conditions. "Italy will also be happy to take money without tough conditions and Ireland may demand that its conditions be softened retroactively," it said.

"The Spanish case shows there is not much left of the ‘German' principle to allow aid within the euro area only with the toughest possible reform requirements."

FIREWALLS "DON'T HELP"

Finance Minister Wolfgang Schaeuble mounted a campaign on television and radio to defend the decision, pointing out that Spain's debt pile was smaller than Germany's but its banking problem "had to be resolved with enough capital being added".

With the German parliament yet to give its approval to the Merkel-led fiscal compact for budget discipline in Europe and to the permanent euro zone bailout mechanism, Merkel's Christian Democrats (CDU) tried to avoid the Spanish deal providing more fuel to the eurosceptics' arguments.

"The decisive issue here is that the aid will not be given directly to Spanish banks but to a restructuring fund commissioned by the state, and it is the Spanish state that vouches for it," senior CDU MP Norbert Barthle told Reuters.

He was confident that talks with Germany's main centre-left opposition on growth stimulus and job creation would enable the fiscal compact and European Stability Mechanism (ESM) to get through parliament by the summer recess.

"We would certainly need some parliamentary say in Germany over Spain's bailout aid and I believe that we can get a majority for this," said Barthle, reflecting confidence that the pro-euro Social Democrats and Greens would support Spanish aid.

This view is supported by Germany's main industry body, the BDI, whose export-oriented members have benefited hugely from the weak euro and low interest rates in the euro zone.

"The situation in Spain is completely different to Greece - the economy is much stabler and it has traditionally had a fairly low level of national debt," the BDI's Markus Kerber told the Sueddeutsche Zeitung daily, justifying the move to resolve a banking crisis "hanging like a millstone round's Spain's neck".

Merkel is squeezed uncomfortably between foreign partners like Washington, Paris and London demanding more decisive action to save the euro and German voters who are no longer convinced the single currency is better than the old Deutsche mark, according to recent opinion polls.

With recent indications that German resilience to the crisis is weakening, the financier George Soros wrote in France's Le Figaro that a weaker German economy would make it "even more difficult for the Chancellor Angela Merkel to persuade the German public to accept more responsibilities vis-à-vis Europe".

The chancellor is unable to convince even her own back benches, where the views of once fringe eurosceptics like Frank Schaeffler of her junior coalition partners, the Free Democrats (FDP), have become more widely reflected in the German media.

"It is now clear that all these firewalls don't help, they merely create ever greater incentives for countries to take shelter in rescue schemes, as is the case with Spain," he said.

(Additional reporting by Gareth Jones and Michelle Martin; Writing by Stephen Brown; Editing by Giles Elgood)

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