* German coalition MPs agree non-binding resolution for ban
* Refers to permanent rescue fund to run from 2013
* Could affect EFSF, tie Merkel's hands at summit - analysts
(Recasts, updates with comment, background)
By Erik Kirschbaum and Sarah Marsh
BERLIN, Feb 23 Germany's government will take
note of domestic pressure to rule out bond buybacks by the euro
zone's permanent rescue fund, signalling it could take a hard
line in crunch talks on the crisis next month.
MPs from Chancellor Angela Merkel's Christian Democrats
(CDU) and her coalition partners approved a motion on Tuesday,
seeking to ban buybacks by the European Stabilisation Mechanism
(ESM) when it replaces the temporary EFSF fund in 2013.
Though non-binding, government spokesman Christoph Steegmans
told a news conference the resolution had been
"closely-coordinated" with government officials.
"You can assume that there was close coordination between
the parliamentary groups and members of the government,"
Steegmans. "And there will be (further coordination) as far as
the further progress of negotiations in Europe are concerned."
Merkel has long been dragging her heels on agreeing to boost
the scope and size of the bailout fund.
Fears of further election defeats in Germany, after her CDU
party was routed in Hamburg at the weekend, has added to
pressure for her not to underwrite the debts of the euro zone's
While not explicitly ruling out buybacks under the EFSF --
an idea that is helping prop up debt markets -- the motion risks
diluting what steps Germany is willing to consider on the crisis
at a summit scheduled for March 24/25.
"In principle, there won't be any agreement on any rescue
package without the explicit approval of Angela Merkel," said
Kornelius Purps, fixed income strategist at Unicredit in Munich.
"If she sticks to guidelines set by her coalition partners
last night there won't be an agreement on debt buybacks by the
EFSF (either) or on common euro bonds."
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.
Spanish Prime Minister Jose Luis Rodriguez Zapatero told
Reuters on Tuesday he was confident Germany would support a
strengthening of the euro zone fund despite Merkel's domestic
Portuguese and Spanish debt spreads against German Bunds
were little changed on Wednesday.
"ONLY TRYING TO HELP"
The parliamentary motion, obtained by Reuters on Tuesday,
recommends the German government rule out bond buybacks and not
agree to any measures that could lead to a "transfer union". It
will be submitted to a vote in the lower house of parliament on
It sends the government a message that Merkel could ignore,
but sources say she supports much of its content and will in any
case need parliamentary backing for new euro zone aid measures.
"We want to strengthen the chancellor's position," said a
FDP parliamentary group leader Birgit Homburger added: "The
resolution is designed to give the government backing for the
European negotiations because we know that the other EU
countries have other viewpoints than we do."
Merkel has urged deputies to keep in mind that Germany
cannot successfully push through all of its demands in talks
with its 26 EU partners.
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 region's year-long crisis.
But any perceived relaxation of debt terms for euro zone
stragglers is a sensitive subject in a year of seven German
state elections. 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]
Some analysts 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."
Mayer said that if Merkel feels bound by the resolution, the
end result would most likely be to further burden the European
Central Bank with the task of funding countries that cannot
access the market.
Fabian Zuleeg, chief economist at the European Policy Centre
think tank, said the resolution could leave Merkel's hands tied.
"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 John
Stonestreet and Patrick Graham)