Merkel keeps coalition, if not markets, happy

17th August 2011, Comments 0 comments

Measures agreed at a Franco-German summit were generally well-received Wednesday in Germany where Chancellor Angela Merkel has managed to keep her coalition government, if not the markets, happy.

"It's the right direction, the chancellor has our support," Christian Lindner, general secretary of the pro-business Free Democrats (FDP), junior partner in Merkel's conservative-led government, told reporters.

The FDP had been especially vocal in its warnings to Merkel ahead of her summit late Tuesday in Paris with French President Nicolas Sarkozy, especially on the issue of eurobonds which it whole-heartedly rejects.

The Frankfurt stock exchange, however, reacted with scepticism to the Franco-German proposals, losing ground through the morning.

Shares in the stock market operator Deutsche Boerse fell by more than seven percent after Merkel and Sarkozy's proposal for a tax on financial transactions at the European level.

From the financial markets' point of view, "the results are rather disappointing and shouldn't do much to shore up the euro," analysts at Germany's Commerzbank said.

But newspapers and politicians, including many from the opposition, reacted positively to Franco-German calls for better governance of the eurozone which has been under attack in financial markets because of the growing debt crisis.

Even Frank-Walter Steinmeier, the parliamentary leader of the Social Democrats, the main opposition party, suggested the proposals were a first step "on the right road".

But they would not solve the current financial crisis, he added.

"What we are faced with is a refinancing crisis of countries over-burdened by debt. We need a fireman to deal with this. Getting better warnings about fires in the future doesn't help put out the blaze currently threatening the euro," he told ARD public television.

He also criticised Merkel and Sarkozy's decision to brush under the carpet the question of eurobonds, seen by many as a means of alleviating the risk of debt contagion.

Merkel's Christian Democratic Union (CDU) parliamentary group will meet next week to shore up support for ratification next month of an enlarged European Financial Stability Facility (EFSF) rescue fund against a backdrop of failing popularity for the government.

The SPD and their favoured partners, the Greens, have an 11-point lead over the current ruling coalition, according to a Forsa opinion poll conducted between August 8 and 12 and released Wednesday.

The SPD and Greens would win 47 percent of the vote compared to 36 percent for the ruling coalition if elections were held now, the poll said.

The government's poor showing is due in part to Merkel's sudden decision in March to abandon nuclear power as well as to her tentative reaction to the euro crisis, Forsa boss Manfred Guellner said.

"People have the impression that the government has no policy and just reacts to the tide of events," he said.

Merkel will ask parliament to approve strengthening the EFSF to help bail out debt-ridden eurozone partners.

But while she is assured of a comfortable majority -- with the support of part of the opposition -- there have been warnings from within her own ranks that the matter should be debated thoroughly rather than rubber-stamped.

For Ulrike Guerot, who heads the Berlin office of the European Council on Foreign Relations (ECFR), the measures agreed in Paris will serve Merkel well at home.

"She has certainly scored some points at home", especially with the FDP who are well satisfied with the proposal that all eurozone members should inscribe a proviso to maintain balanced budgets in their constitutions, she said.

Germany already has such an article in its constitution.

© 2011 AFP

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