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Germany should not dictate economic policy to euro zone: SPD's Scholz

BERLIN (Reuters) - Germany should not dictate economic policies to its euro zone partners, said Social Democrat Olaf Scholz, who is expected to become finance minister in a new coalition government led by Chancellor Angela Merkel’s conservatives.

Olaf Scholz of the Social Democratic Party (SPD) arrives for coalition talks about forming a new coalition government at the CDU headquarters in Berlin, Germany, February 3, 2018. REUTERS/Axel Schmidt/Files

His comment, in an interview with Der Spiegel magazine published on Saturday, is the clearest sign yet that Germany plans to soften its insistence on strict fiscal discipline in the currency bloc.

“We don’t want to dictate to other European countries how they should develop (economically),” said Scholz, the pragmatic mayor of Hamburg widely expected to succeed conservative Wolfgang Schaeuble, who for eight years was the face of austerity.

“Mistakes were surely made in the past,” Scholz added, in subtle criticism of Schaeuble, who made bailout aid for southern countries like Greece and Portugal conditional on highly unpopular spending cuts.

Merkel made painful concessions to the centre-left Social Democrats (SPD) - including ceding the influential finance portfolio - to secure a fourth term in office after an inconclusive election in September.

The 464,000 SPD members still have to ratify the deal reached this week in a postal ballot. The results will be announced on March 4.

Merkel’s decision to relinquish the finance ministry has irritated some members of her conservative bloc, where Schaeuble enjoys almost cult status for his championing of strict budget rules.

Some conservatives are also unhappy with her decision to allow the SPD to spend a record budget surplus and to embrace their demands for European reform.

The SPD have criticized the “forced austerity” on southern European countries like Greece and had vowed in the election campaign to boost investments.

Seeking to allay conservative concerns that the next government would spend beyond its means, Scholz said the SPD were also for sound finances and would preserve Schaeuble’s balanced budget policy.

The SPD had said before the election they would sit in opposition but reversed the decision not to renew the alliance with the conservatives that had ruled Germany since 2013 after Merkel failed to form a coalition with two smaller parties.

The four-year government programme agreed by the two parties was welcomed by senior EU officials.

It stresses Germany’s commitment to the EU’s strict budget rules, calls for the euro zone’s ESM bailout fund to be turned into a full-blown European Monetary Fund, and for funding to shield the euro zone from crises.

Reporting by Joseph Nasr; Editing by Stephen Powell