* Wulff says lost trust of German people
* Departure could harm Merkel, but euro impact unlikely
* Chancellor to seek consensus candidate to succeed Wulff
By Noah Barkin and Madeline Chambers
BERLIN, Feb 17 (Reuters) - Angela Merkel’s hand-picked choice for the ceremonial post of president resigned on Friday in a scandal over political favours, dealing a blow to the German chancellor in the midst of the euro zone debt crisis.
In a curt five-minute statement at the Bellevue presidential palace, Christian Wulff acknowledged that he had lost the trust of the German people, making it impossible to continue in a role that is meant to serve as a moral compass for the nation.
“For this reason it is no longer possible for me to exercise the office of president at home and abroad as required,” said Wulff, standing next to his wife Bettina.
The search for a successor to Wulff could become a distraction for Merkel at a time when her government is embroiled in tough talks on a second bailout package for Greece, although analysts said they expected any impact on the negotiations to be limited.
Merkel postponed a Friday trip to Rome, where she was to hold talks on the debt crisis with Italian Prime Minister Mario Monti, to deal with the fallout from Wulff’s departure.
She made a brief statement after his announcement, saying she regretted his departure and would seek talks with opposition parties to find a candidate to replace him.
The chancellor is riding a wave of popularity in Germany for her handling of the crisis, but the departure of Wulff raises questions about her judgement because she forced through his appointment in 2010 over a strong opposition candidate most Germans favoured.
He is the second president to step down in less than two years. His predecessor, former International Monetary Fund chief Horst Koehler, resigned unexpectedly after coming under fire for comments he made about the German mission in Afghanistan and failing to get strong backing from Merkel.
The resignation is likely to embolden the opposition Social Democrats (SPD) and Greens, who have shied away from criticising Merkel too strongly in recent months.
Despite her vow to find a consensus candidate to replace Wulff, the choosing of a successor could prove divisive at a fragile time for Europe. Greece needs the new aid deal to avert a chaotic default that could push it out of the euro zone. Berlin is playing a decisive role in shaping the package.
How much of a distraction the Wulff saga becomes depends on how fast a successor can be agreed. A vote in the 1,244-seat Federal Assembly must take place within a month, or by March 18.
“This won’t be without consequences for Merkel, her reputation will suffer from it,” said Gerd Langguth, political scientist at Bonn University.
Carsten Brzeski, an economist at ING, said the resignation was unlikely to have an impact Greek bailout negotiations.
“However, domestic political pressure on Angela Merkel could increase again and will not make her life any easier,” he said.
Merkel won a second term in 2009 and will not face another federal election until the autumn of 2013. But her party faces battles to hold onto power in the states of Saarland and Schleswig-Holstein in regional votes due in March and May.
A member of Merkel’s Christian Democratic Union (CDU) who served as premier of the western state of Lower Saxony, Wulff was once seen as a potential rival to Merkel and many in Germany saw his appointment as a ploy by the chancellor to push him out of the political arena.
He has long cultivated a schoolboy image, but his reputation took a hammering when the Bild newspaper reported late last year that he had misled the state parliament about a cheap 500,000 euro ($650,000) home loan from a businessman friend before becoming president.
Last month he admitted making a “grave mistake” by threatening the editor of top-selling Bild with “war” if he published the story about his private finance dealings.
Since then, there has been a constant stream of new revelations that have chipped away at his credibility, leading the German media to mock him and even invent a new verb in his honour. “Wulffen” - or literally “to Wulff” -- means to be evasive without telling a clear lie.
Wulff has been one of the main targets at this year’s carnival celebrations in the Rhineland where politicians are traditionally lampooned.
One float in the city of Mainz has an effigy of him with a black eye and plaster on his forehead slumped at the edge of a boxing ring. In Cologne, where the biggest processions take place, Wulff is dressed up as a grey rabbit on the butcher’s table about to be carved up.
On a trip to Rome earlier this week and in a briefing with a small group of journalists on Thursday, Wulff made clear he planned to hang onto his post.
But the situation changed dramatically in the evening when state prosecutors in Hannover, the capital of Lower Saxony, asked parliament to end his legal immunity over accusations he accepted favours in a prelude to opening an investigation.
It is the first time ever that prosecutors have wanted to investigate a German president and the move triggered direct calls from opposition parties for the 52-year old Wulff to go.
“The office of the presidency has been damaged. Mr. Wulff’s resignation was necessary but it came too late,” leaders from the opposition Left Party said in a statement.
The leading contender to succeed him is Joachim Gauck, an anti-Communist human rights activist in East Germany who ran against Wulff in 2010 and embarrassed Merkel by forcing the election in the Federal Assembly into a third round.
Wolfgang Kubicki, a senior figure in the Free Democrats (FDP) who rule in coalition with Merkel, said many in his own party had broken ranks and backed Gauck two years ago.
“He would be able to restore confidence in this office,” Kubicki said, stressing the importance of securing a broad majority in the Assembly, in which Merkel’s coalition parties hold a razor-thin majority.
Other potential candidates include Defence Minister Thomas de Maiziere, Labour Minister Ursula von der Leyen, Bundestag President Norbert Lammert and possibly Finance Minister Wolfgang Schaeuble, though shifting him to Bellevue palace would leave a gaping hole in Merkel’s cabinet in the midst of the euro zone sovereign debt crisis.
Merkel has been criticised in the past for what has often looked like a concerted policy of sidelining capable figures in her party who she sees as potential rivals.
Former Hesse state premier Roland Koch abruptly resigned in 2010 after realising Merkel would never give him a cabinet job. The chancellor sent Guenther Oettinger, former CDU state premier in Baden-Wuerttemberg, to Brussels where he now serves as Energy Commissioner.
The moves have left Merkel as the undisputed leader of the CDU, but some conservatives worry that the party has now become overly dependent on her and lost its identity and traditional values.
A poll last week showed 77 percent of Germans approve of the job Merkel is doing. Support for her conservatives has pushed up to its top level since mid-2009, pulled higher by the popularity of the pastor’s daughter from the former East Germany.