German government, opposition reach deal for Berlin to ratify EU budget discipline pact

BERLIN – German Chancellor Angela Merkel’s governing coalition reached a deal Thursday with the opposition parties to ensure that the country ratifies Europe’s budget discipline pact, agreeing to push for a financial transaction tax and support investments to foster economic growth.

However, Merkel’s centre-right government blocked opposition calls to accept a so-called European debt redemption fund, sticking to its resistance to any form of pooling debt among eurozone countries.

The government needed a deal with the opposition to secure the necessary two-thirds parliamentary majority for Merkel’s cherished budget discipline pact, the so-called fiscal compact. The agreement clears the way for Parliament’s lower house to approve it June 29, along with the eurozone’s permanent rescue fund.

The government still needs a deal with Germany’s 16 states, which are represented in the upper house, and talks are planned on Sunday.

The leader of the main opposition Social Democrats’ parliamentary group, Frank-Walter Steinmeier, said the deal would call for investments using European Union structural funds that haven’t yet been allocated; increasing the lending capacity of the European Investment Bank, which lends money for public projects; and the use of so-called project bonds to finance specific projects.

“The age of austerity is passing,” proclaimed Green party parliamentary leader Juergen Trittin, who said those pro-growth measures would allow for launching “investments in the three-figure billions in the next four years.”

Still, they appear largely in line with what the government has itself proposed ahead of next week’s EU summit, and stopped short of outright stimulus spending. The so-called “pact for sustainable growth and employment” the two sides agreed on Thursday states that spending “should be funded by revenue, not on credit.”

The opposition insisted over recent weeks that it wanted a financial transaction tax — something it has long pushed — in exchange for signing up to the fiscal compact.

The governing coalition’s junior member, the pro-market Free Democrats, long insisted that it was only interested if such a tax could be introduced in the full 27-nation EU — which, given British resistance, wasn’t going to happen.

“We have agreed that, if it doesn’t work out among all 27, we will put together a coalition of the willing, that at least nine states … will launch the taxation of financial markets,” Steinmeier said. The aim is to have legislation in place by the end of the year.

However, the opposition hit a brick wall with its push for a European debt redemption fund along lines proposed last November by the government’s panel of independent economic advisers.

That would see a country’s debts above 60 per cent of GDP transferred to a common redemption fund with joint liability. They would be obliged to pay them off over 20-25 years and would have to pledge part of their foreign exchange or gold reserves as security.

Merkel’s coalition remains staunchly opposed to any talk of pooling debt, even if it falls short of issuing jointly guaranteed new bonds, or eurobonds, that would push down struggling countries’ borrowing costs but raise Germany’s.

“There will be no mutualization of debt — debt redemption funds are not permissible constitutionally or according to the provisions of European treaties,” Volker Kauder, who leads the parliamentary caucus of Merkel’s conservative bloc, told reporters.

The Greens said they would keep pushing the point, given the worryingly high level both of existing European debts and of borrowing costs for the likes of Spain and Italy.

“I assume that we will see the implementation (of a redemption fund), just as has practically always been the case so far when the government said something was a taboo and then a bit later had to do it,” party leader Cem Ozdemir said.

The third opposition party, the hard-left Left Party, has consistently opposed Merkel’s eurozone policies and plans to vote against the fiscal compact as well.