* Coalition deputies pass non-binding resolution
* Members of parliament oppose government debt buybacks
* Analysts say could tie Merkel's hands in EZ negotiations
By Erik Kirschbaum and Sarah Marsh
BERLIN, Feb 23 German ruling coalition MPs are
pressing Chancellor Angela Merkel to rule out purchases of debt
by the euro zone's permanent bailout fund, showing how little
political room for manoevre she may have in crunch talks on the
crisis next month.
Merkel has been dragging her heels on agreeing to boost the
scope and size of the bailout fund, and fears of further
election defeats has to pressure for her not to underwrite the
debts of the euro zone's struggling periphery.
Markets for Spanish, Portuguese and other euro zone debt
have been propped up by expectations that Germany would agree
next month to a comprehensive plan to end the crisis.
Although non-binding, the resolution by MPs in her Christian
Democrats (CDU), the Christian Social Union (CSU) and Free
Democrats (FDP) recommended ruling out buybacks of government
debt by the the European Stabilisation Mechanism (ESM) when it
replaces the existing bailout fund in 2013.
The motion, demanding the German government not agree to any
measures that could lead to a "transfer union", was laid out in
a document obtained by Reuters. It will be submitted to a vote
in the lower house of parliament this week. [ID:nBAT006023]
"Parliament expects that jointly financed or guaranteed
purchase programmes of government debt would be ruled out for
reasons of constitutional and European law, and on economic
grounds," the document said, referring to the ESM.
The euro zone's 17 leaders will meet in Brussels on March 11
and bond buybacks are seen by markets and many euro zone
countries as a key ingredient to any deal's success in getting
on top of the year-long crisis.
But any perceived relaxation of debt terms for euro zone
stragglers is a sensitive subject in a year of seven German
In the first vote in Hamburg on Sunday, Merkel's CDU
suffered their worst result since World War Two at the hands of
the Social Democrats. [ID:nLDE71K1CL]
MERKEL SUPPORTS CONTENT
The three parliamentary groups used the resolution to send
the government a message. Merkel could ignore it, but sources
say she supports much of its content. She will in any case need
parliamentary backing for new euro zone aid measures.
Parliamentary sources said they discussed the resolution
with Merkel and Finance Minister Wolfgang Schaeuble in advance.
They also said FDP chairman Guido Westerwelle, whose party is
especially sceptical about euro zone bailout measures, expressly
praised the resolution as a victory for the FDP position.
Analysts said they were bewildered by the move.
"I don't think they've thought through the implications,"
said Thomas Mayer, chief economist at Deutsche Bank. "What do
they want? It's not clear to me."
It is, however, making the temporary EFSF bailout fund able
to buy bonds that is the most crucial part of what investors
hope for from next month's talks. The motion did not explicitly
exclude such purchases.
Mayer said if bond buying by the ESM fund was ruled out,
there were three possible scenarios for dealing with those
countries not able to tap financial markets.
"It's then either the taxpayer engineering a full bailout or
the central bank buying all the bonds that cannot be sold in the
market and taking the private sector out," he said. "The third
possibility they are not addressing is one that allows an
unmanaged default. But I don't think anyone wants that."
He said that if Merkel feels bound by the resolution, "we
will most likely end up in a situation where we will further
burden the European Central Bank with the task of funding
countries that cannot access the market."
Germany has already said it will only agree new measures if
they come as part of a comprehensive package to solve the crisis
-- code for indebted states taking aggressive steps to among
other options cut back on public spending and cap wage growth.
Fabian Zuleeg, chief economist at the European Policy Centre
think tank, said the resolution could leave Merkel's hands tied.
"At the moment we need to keep all options open because
there are continuing problems in certain countries where it is
very hard to see how they will ever be able to deal with the
mountain of debt they have got without some form of new
mechanism," he said.
"I'd expect Merkel will want to keep a certain amount of
flexibility in European negotiations, so I'm not sure how much
influence this paper will have. Certainly it isn't helpful."
(Additional reporting by Andreas Rinke; editing by Patrick