German opposition warns on EU treaty

GERMAN CHANCELLOR Angela Merkel’s hopes of ratifying the European fiscal treaty before the summer break could stumble over opposition demands for further measures to stimulate struggling euro zone economies.

Dr Merkel needs a two-thirds parliamentary majority – and thus opposition support – to pass legislation enacting the permanent European stability mechanism (ESM) bailout fund and new fiscal discipline rules.

She had hoped to reach cross-party agreement in the coming weeks and Bundestag backing by May. The ESM is supposed to be up and running by July 1st. Yesterday German finance minister Wolfgang Schäuble said the ESM and fiscal pacts were “crucial” steps towards euro zone stability.

After agreeing this week to allow a bigger ESM than initially planned, Mr Schäuble rejected calls for another fund boost yesterday. “You can make a firewall as high as you want and it will be no help unless you tackle the root cause of this crisis,” he said, blaming years of uncontrolled deficit spending for euro zone instability.

Germany’s opposition Social Democrats (SPD) and Greens have indicated that they are prepared to back the fiscal treaty-ESM package in parliament, but have warned the government “not to expect approval to fall into its lap”.

SPD parliamentary leader Frank-Walter Steinmeier said Germany had become a lonely “island” of prosperity in Europe.

Growth in crisis countries could only come with a mix of saving and stimulus, he said. “The red figures of other states today are our problem of tomorrow,” he said.

“It cannot be that everyone around us is in difficulty but we keep doing well.”

Ahead of two key state elections in May, the SPD is determined to extract the maximum political capital from the bailout debate but is divided over how far to go. SPD leader Sigmar Gabriel insists the party should make its support dependent on Berlin demanding a financial transaction tax across the euro zone.

Other SPD figures, such as Mr Steinmeier, believe a hard line could endanger the timing of the Bundestag vote, even the vote itself, and potentially damage the SPD ahead of next year’s general election.

Regardless of when it is passed, the ESM legislation is likely to be challenged in the constitutional court by the Left Party, which argues that it undermines the European welfare state and German democratic principles.

Outside the Bundestag yesterday, Left Party protesters carried a banner reading: “For a Social Europe – No to Fiscal Pact!”