UPDATE 1-German opposition fumes before fiscal pact talks

Sun Jun 10, 2012 9:27pm IST

By Madeline Chambers

BERLIN, June 10 (Reuters) - A media report that German Chancellor Angela Merkel is not serious about implementing a European financial transaction tax threatens to undermine an initial deal struck last week with the opposition over the EU's planned fiscal pact.

Der Spiegel weekly reported on Sunday that Merkel's Chief of Staff, Ronald Pofalla, had said such a tax would not get passed in the current legislative period so the centre-right coalition could support the idea in principle knowing it would not have to act on it any time soon.

Last week, the government and opposition parties agreed on the outlines of a transaction tax proposal. On Monday, further talks between senior party members are due to take place and Merkel wants these to form a basis for a final deal when party chiefs meet on Wednesday.

Saturday's agreement between euro zone finance ministers to lend Spain up to 100 billion euros to shore up its banks will, if anything, raise the pressure on her to quickly get opposition support to ratify an EU deal on budget discipline.

She wants to push the pact through parliament in the next few weeks together with a bill on the new European Stability Mechanism (ESM) bailout fund which Spain may use, but needs the opposition to get the required two thirds majority.

The Social Democrats (SPD) and Greens are insisting on a plan for a transaction tax and measures to boost growth.

It would be a major embarrassment if Germany, which as euro zone paymaster dictates much of its crisis response, missed its deadline for ratification on July 1 when the ESM is due to take effect.

Finance Minister Wolfgang Schaeuble tried to pressure the SPD and Greens.

"It would be completely irresponsible not to ratify the fiscal treaty," said Schaueble on ARD television, adding he doubted a European financial transaction tax would be introduced in this legislative term which runs until next year's elections.

He said on Saturday that Spain's decision to request aid made it even more important to quickly ratify the fiscal pact and ESM. Its greater flexibility makes the ESM preferable to the European Financial Stability Facility (EFSF) to use for Spain.

ANGRY

The magazine report triggered an angry response from the SPD and Greens.

"Ronald Pofalla's comments are a blow to the fiscal pact talks," said senior SPD member Thomas Oppermann, adding they sowed doubts as to whether the coalition really wanted a deal.

"We need an irreversible commitment to introduce a financial transaction tax. There will be no formulaic compromises with the SPD," he said.

Greens politicians said Pofalla was playing a dangerous game if he wanted to outsmart the opposition on the transaction tax.

"Whoever plays tricks risks the failure of the fiscal pact," said senior Greens politician Volker Beck.

Germany will not be able to get a financial transaction tax imposed across Europe due to opposition from Britain and some other EU members.

But the paper agreed last week stated that if approval from all 27 EU members was not forthcoming, Germany would seek stronger cooperation ... with as many other member states as possible", meaning at least nine EU countries.

SPD leaders stressed at the weekend that its support for the fiscal pact was not yet a done deal.

"Agreement with the federal states is still needed and the government has delivered little on growth and fighting youth unemployment," SPD parliamentary party leader Frank-Walter Steinmeier told the Frankfurter Allgemeine Sonntagszeitung.

"There must be movement on this in the coming days."

On Monday, Schaeuble will discuss the fiscal pact with ministers from Germany's 16 federal states and parliamentary leaders from all parties will also hold talks.

Highlighting the domestic pressure she is under to take a tough line with struggling euro zone members, an Emnid poll for Bild am Sonntag newspaper showed 66 percent of Germans are opposed to supporting Spanish banks with German money.

However, the poll, conducted before the euro zone finance ministers agreed to help Spain, also showed only 26 percent said they were worried about the stability of the euro.

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