UPDATE 3-German parties urge referendums on major EU decisions
* Merkel allies say referendum proposal won't become policy
* Post-war constitution places high hurdles on referendums
* Germans had no direct vote on the euro or reunification
By Sabine Siebold and Noah Barkin
BERLIN, Nov 12 (Reuters) - German parties negotiating a coalition deal have recommended holding nationwide referendums for major decisions on Europe in what would be a dramatic shift in policy, but Chancellor Angela Merkel looks likely to quash the proposal.
The idea was spelled out in a document put together by one of the working groups discussing policy compromises to enable a government between Merkel's conservatives and the centre-left Social Democrats (SPD).
It calls for referendums when new members join the European Union, when powers are transferred from Berlin to Brussels and when Germany commits money at EU level -- a shift that could severely limit Berlin's ability to act swiftly in a crisis.
But the proposal has yet to be approved by a larger coalition panel led by Merkel, and senior members of her Christian Democrats (CDU) made clear on Tuesday that they opposed the idea.
"As before, there are serious doubts about the introduction of referendums at the national level," said Guenter Krings, a deputy leader for the party in parliament.
Elmar Brok, a senior figure in Merkel's CDU and a member of the European parliament, said the proposal would not see the light of day.
"If this was implemented in Germany, it would be seen abroad as putting an end to further development of the EU, the EU would become ineffective," he said. "We would be reducing ourselves to the level of British policymakers."
Still, the document underscored the unease among German parties, particularly in the Bavarian Christian Social Union (CSU), with the democratic legitimacy of decisions to transfer competencies to the European Union and use German money to support struggling partners during the euro crisis.
"The population should be asked directly on European policy decisions of special importance," reads the document, produced by a domestic policy working group led by CSU Interior Minister Hans-Peter Friedrich and Thomas Oppermann of the SPD.
"This would apply in particular when new member states are added, when important powers are to be transferred to Brussels, or when German finances are committed at EU level. For such decisions we want to pave the way for nationwide referendums."
Greek bond yields rose on the news amid concerns it could slow or impede the flow of aid to Athens.
While referendums are common in Ireland, Switzerland and some Scandinavian countries, Germany's post-war constitution sets high hurdles for them, in part because plebiscites are blamed for helping Adolf Hitler's rise to power.
Germany's "Basic Law" only permits national referendums in the extreme circumstances of changing the constitution itself or reshaping borders.
Even with these exceptions, German citizens had no vote on reunification in 1990. Nor were they given a direct say in the decision, nearly a decade later, to replace the deutsche Mark with the euro.
At the height of the euro crisis in early 2012, when Germany's Constitutional Court was voicing concerns about the legality of measures to curb the turmoil, there was a vigorous debate about changing Germany's "Basic Law".
Finance Minister Wolfgang Schaeuble said at the time that a referendum on closer European integration may be necessary "more quickly than I would have believed".
A Deutschlandtrend poll published in June of that year showed that 71 percent of Germans favoured a direct vote on ceding more powers to EU authorities in Brussels.
But Merkel has always been cool on the idea, in part because of concern that referendums could fuel populist parties, like the formed Alternative for Germany (AfD), a new anti-euro movement that nearly won seats in the German parliament in a September election.
The debate over referendums has faded since mid-2012 as the crisis has eased, and it did not play a significant role during the election campaign.
"I cannot believe that this will survive the coalition negotiations," said Tanja Boerzel, a professor at Berlin's Free University.
"The CSU has always pushed for referendums. I am not sure why the SPD agreed to this, maybe this is part of a bargaining strategy, something for the SPD to drop in return for something else. The CDU is certainly ambivalent, and I cannot believe that Merkel will accept the proposal."