Bloomberg News

Merkel’s Coalition Split on ECB Action as Crisis Backing Wanes

July 30, 2012

German Chancellor Angela Merkel’s coalition partners cast doubt on any European Central Bank plan to buy government bonds, underscoring her domestic difficulty in winning support for new measures to quell the financial crisis.

“I’m very, very skeptical,” Horst Seehofer, the Bavarian prime minister who heads the Christian Social Union, sister party to Merkel’s Christian Democratic Union and one of three coalition partners, said in an interview with ZDF television yesterday. “It’s not the job of the ECB to provide state aid.”

Economy Minister Philipp Roesler, who heads the Free Democratic Party, said the ECB’s central task is price stability and not financing government debt. Supporting the euro by buying bonds cannot be “a long-term solution,” he said in a weekend interview with the Neue Osnabruecker Zeitung newspaper posted on the FDP website.

The comments by Merkel’s fellow coalition leaders highlight the balancing act she must maintain between courting domestic voters to keep her government intact and heeding international calls for Germany to underwrite the euro-area’s debt-ridden states. With federal elections due in little more than a year, public confidence in Merkel’s crisis-fighting response is declining, a YouGov Plc poll in Bild newspaper showed yesterday.

Geithner Talks

German Finance Minister Wolfgang Schaeuble interrupted his vacation today to meet with U.S. Treasury Secretary Timothy F. Geithner after ECB President Mario Draghi said July 26 that he would do whatever is needed to preserve the euro. Merkel lent her voice to that sentiment in separate messages with French President Francois Hollande on July 27 and Italian Prime Minister Mario Monti yesterday.

Draghi’s proposal involves Europe’s rescue fund buying government bonds on the primary market, buttressed by ECB purchases on the secondary market, two central bank officials said July 27 on condition of anonymity.

That prompted a rebuke from CSU leader Seehofer, who told ZDF that the ECB “has to follow a policy of maintaining price stability, like the Bundesbank did before, and not do what is the duty of member states.” He said “it can’t be that the ECB buys government bonds on a large scale.”

One third of Germans say that Merkel is taking “more or less the right decisions” on the euro crisis, while 48 percent say her policy is wrong, the YouGov poll found. In a separate Infratest Dimap poll for ARD television published July 6, 58 percent said Merkel is taking the right decisions in the crisis.

Frank-Walter Steinmeier of the main opposition Social Democratic Party, whose votes for Merkel’s crisis-fighting measures including aid for Spain’s banks ensured passage in the German parliament, said she was shirking responsibility, according to an interview in Die Welt newspaper published today.

Steinmeier, who served as foreign minister in Merkel’s first-term government and is a potential candidate to stop her from winning a third in elections due in the fall of 2013, said Merkel wants to “palm off” efforts to tame the crisis on to the ECB, according to Die Welt.

To contact the reporters on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net; Brian Parkin in Berlin at bparkin@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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