German SPD drops debt fund demand, talks on bank union continue

BERLIN Mon Nov 11, 2013 12:36pm EST

BERLIN Nov 11 (Reuters) - Germany's Social Democrats (SPD) have dropped their demand for a euro zone debt redemption fund in coalition talks with Angela Merkel's conservatives, but the camps still have work to do to finalise a deal on banking union, both sides said on Monday.

The centre-left SPD supported the idea of common euro zone bond isuance during the height of the euro crisis, before shifting its stance early this year and backing the debt fund idea, originally floated by Germany's "wisemen" council of economic advisers.

But both ideas are considered taboo by Merkel's conservatives and the SPD was never expected to push hard on the debt issue in the talks, in part because the borrowing costs of struggling southern euro members have fallen sharply over the past year, reducing the need for radical steps.

"There will be no debt mutualisation - that was the expressed desire of the conservatives," said Martin Schulz, the EU parliament president and a leader of the SPD's negotiation team in Berlin.

In exchange, the conservatives agreed to back an SPD proposal for a minimum wage corridor throughout the EU, they Michael Stuebgen of the conservatives and Axel Schaefer of the SPD told Reuters.

Schulz said there was still work to do on the question of Europea bank resolution after Reuters reported on Saturday that the two sides had struck a preliminary deal under which a body attached to the council of European finance ministers, not the European Commission, would decide when to close failing banks.

"We're simply not finished yet with the banking union," Schulz said.

Several sources involved in coalition talks between the parties had told Reuters that while a number of legal questions still needed to be resolved, the aim was to sign off on an agreement on bank resolution this week before Finance Minister Wolfgang Schaeuble heads to a meeting with his EU colleagues on Thursday.

But Martin Kotthaus, Schaeuble's spokesman, played down the need for a deal this week, saying the only firm goal was to reach an agreement at EU level by year-end.

"It's news to me that we wanted to conclude the topic of banking union this Thursday," he said.

Uncertainty over Berlin's banking union stance in the wake of a September election has sowed doubts about whether the bloc can meet the year-end deadline.

Merkel's Christian Democrats (CDU) emerged from the Sept. 22 vote as the largest political force but need a coalition partner. They are expected to conclude a deal with the SPD by Christmas, but banking union has been one of the most divisive issues in their talks.