German SPD escalates euro showdown with Merkel

BERLIN Wed May 9, 2012 7:09pm BST

Related Topics

BERLIN (Reuters) - Germany's Social Democrats, emboldened by a victory for the left in France, attacked Chancellor Angela Merkel's austerity drive in Europe on Wednesday, accusing her of boosting the far-right in Greece and raising the risk of it exiting the euro zone.

The opposition SPD has so far been reluctant to openly challenge Merkel's insistence on fiscal discipline, which German voters broadly support, but events in France and Greece have opened up a flank they are keen to attack, especially ahead of an election this weekend in Germany's most populous state.

SPD leaders hardened their opposition on Wednesday to Merkel's plans to win quick parliamentary approval of tough new European budget rules, in what could develop into a major showdown between the chancellor and the party she ruled in coalition with between 2005 and 2009.

SPD chairman Sigmar Gabriel said in an interview to be published on Thursday that Merkel's single-minded focus on balancing the books had increased the danger of chaos in Greece and of an eventual euro breakup.

"We are seeing the result of this policy in Greece where the radical right and enemies of Europe are entering parliament," he told the weekly Die Zeit newspaper.

"Almost all economists have long shared (our) criticism of Merkel's unimaginative imposition of austerity," he added.

Greece on Wednesday moved closer to a second snap poll after a backlash against austerity bolstered extremist parties in Sunday's election, robbing mainstream parties that support the terms of the country's EU/IMF bailout of their parliamentary majority.

Socialist candidate Francois Hollande's victory in Sunday's French presidential runoff is also being seen as a rejection of Merkel's tough medicine for euro stragglers.

Gabriel said the French vote had given "enormous momentum" to those in Europe pressing for a growth pact to complement the tough budget rules contained in the fiscal compact agreed by EU leaders last year.

FISCAL PACT

Merkel wants the Bundestag, the lower house of parliament, to vote on both the fiscal compact and the euro zone's permanent rescue mechanism (ESM) on May 25th. But she is reliant on the opposition for passage and the SPD wants a delay to ensure pro-growth measures are also in the pipeline.

"The government's timeline for approving the fiscal compact and the ESM was never realistic," SPD parliamentary leader Frank-Walter Steinmeier said.

Lawmakers were due to finalise the timing of the vote next week after voters in Germany's most populous state, North Rhine-Westphalia, go to the polls on Sunday.

The SPD is expected to win that election and form a ruling coalition with the Greens, dealing another blow to Merkel's conservatives, who lost power in the northern state of Schleswig-Holstein on Sunday.

With speculation growing of a possible Greek exit from the euro zone, former German finance minister Peer Steinbrueck said Europe should prepare a 'plan B' to cope with any possible departure of a country from the currency bloc.

"If I had political responsibility, I would want to prepare for a plan B that would foresee that the European currency union, that the euro zone, no longer necessarily consists of 17 member states," Steinbrueck said in an interview on German television, when asked about Greece's future.

"And that means to make provisions so that other countries are not pulled into the maelstrom through contagion."

Steinbrueck, Gabriel and Steinmeier are the leading candidates to challenge Merkel in next year's federal election.

Nationally, Merkel remains the most popular politician and her conservatives are still ahead of their rivals, according to an INSA opinion poll published in Wednesday's Bild daily that gave them 35 percent against the SPD's 27 percent.

Despite recent regional gains and its expected victory in North Rhine-Westphalia, some SPD supporters are frustrated by their leadership's failure to confront Merkel and differentiate the party from her government in a range of areas, including the euro zone crisis.

(Additional reporting by Stephen Brown, Annika Breidthardt, Matthias Sobolewski, Holger Hansen; Editing by Giles Elgood)

FILED UNDER: