June 7, 2012 / 4:44 PM / 6 years ago

German MPs pave way for fiscal pact, ESM approval

BERLIN (Reuters) - Germany’s government and the main opposition party agreed the outlines of a European financial transaction tax on Thursday, potentially opening the way for parliament to approve a fiscal pact and permanent rescue scheme for the euro zone.

The center-left Social Democrats (SPD) have linked progress on the tax as well as growth-boosting measures to their approval for the pact and for the euro bailout fund, the European Stability Mechanism (ESM). Merkel needs their backing to get the required two-thirds majority in parliament.

The deal could be finalized next week when the main parties’ parliamentary leaders meet on Monday, followed by the party chiefs on Wednesday. But agreement on measures to boost European economic growth remains elusive.

Participants in a working group on the transactions tax did make progress.

“We have reached a breakthrough. The paper proposed by the finance ministry is a path to agreement on the main points,” said an MP from Merkel’s Free Democrat allies, Volker Wissing.

Germany is chasing a tight deadline, with Merkel’s budgetary discipline pact, agreed by 25 European states, due to be ratified by July 1 - when the ESM also takes effect.

It would be embarrassing if Germany, which as euro zone paymaster dictates much of its crisis response, missed the deadline, though it would only cause technical problems if the delay was significant, analysts say.

TAX PURSUED, DEBT PLAN DROPPED

With Britain and some other European Union members opposing a financial transaction tax - while some push for common euro zone bonds, which Merkel rejects - Germany will not be able to get such a tax imposed across Europe.

But the finance ministry paper, which formed the basis for discussions, includes the key point that if approval from all 27 EU members is not forthcoming, Germany would seek “stronger cooperation ... with as many other member states as possible”.

This effectively means at least nine EU countries, the paper explained in a footnote.

The document said such a tax should be designed to prevent business moving to countries without such a levy and should not weigh on the economy, without saying how that could be achieved.

According to the text of the proposal, the lawmakers backed a plan from the EU commission that would levy a tax of between 0.01 and 0.1 percent depending on the product.

While there was no agreement on a proposal for a euro zone redemption fund entailing some shared liability for debts, sources said the SPD would no longer insist on movement on this idea as part of the compromise.

“The SPD no longer attaches that much weight to the topic,” one of the participants in Thursday’s working group said.

Such a fund would pool the excess debt of countries over the EU’s 60 percent of GDP target ceiling into a fund with common liability. They would commit to reforms and debts would be repaid over decades. But the German government will not “move a millimeter” on mutualizing debt, according to a source.

Additional reporting by Hans-Edzard Busemann; Writing by Annika Breidthardt and Stephen Brown, editing by Gareth Jones/Ruth Pitchford

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