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Germany: no breakthrough at EU growth policy talks

German Chancellor Angela Merkel failed to reach an agreement with the country's opposition leaders failed on a European growth initiative in a new round of talks Wednesday, according to participants.

Merkel and top opposition lawmakers held talks at Berlin's chancellery over policies to promote growth in Europe's ailing southern nations and the swift introduction of a financial transaction tax.

Germany's center-right government needs the support of opposition parties to secure a two-thirds majority in Parliament in order to pass the European Union's new treaty enshrining fiscal discipline.

"Because of the European economic crisis, the government is now forced to do something for growth and employment, but there are still no concrete proposals," Social Democrats' party chief Sigmar Gabriel said.

"We will waste German taxes for bailouts if we don't at the same time use money for actually saving the nations" by fostering growth in those economically struggling countries, he added.

Merkel has maintained that sustainable growth to overcome the debt crisis can be best fostered across Europe by structural reforms and a more efficient use of existing EU funds, not new stimulus spending that might be financed by yet more borrowing.

"Fiscal consolidation is a decisive point" for Europe's governments stressed conservative parliamentary caucus leader Volker Kauder, a close Merkel ally. "For growth, structural reforms are necessary. It's not sufficient to throw money around."

Merkel is widely viewed as the European leader most prominently championing fiscal discipline and austerity measures, but a robust economy — Europe's biggest — and rising tax take have spared her government of pushing through any significant cuts at home.

However, led by Merkel, 25 EU nations last year agreed to the treaty which limits the countries' ability to pile up more debt, binding them to strict fiscal and deficit targets as a way to stabilize the continent's finances and regain investors' trust.

But the election of France's new center-left President Francois Hollande's last month shifted the political tide in Europe away from talk about austerity measures toward ways of fostering growth as the bloc is on the brink of a recession, with southern European nations such as Greece, Portugal or Spain particularly hard hit.

"The Europe of austerity is ending," Trittin told reporters, voicing confidence that Merkel will embrace a growth pact.

Merkel's government wants to pass the legislation for the fiscal pact on a tight timetable together with a bill for Europe's new permanent rescue fund by the end of this month. The legislation for the new firewall, the European Stability Mechanism, must be passed with weeks because the ESM is set to start operating in early July.

The opposition has said that it will vote for the ESM on time, but threatened to block the fiscal pact unless Merkel makes concessions.

The Social Democrats and the opposition Greens maintain that a comprehensive growth initiative does not necessarily require new borrowing but should be financed through a swift introduction of a financial transaction tax.

In an earlier round of negotiations, Merkel's government agreed to push for such a tax on a wide range of transactions, even if not all of Europe or the 17-nation eurozone participates.

Green party leader Juergen Trittin said the government has now pledged to seek the tax's introduction through a legal European process that would only require a minimum of nine countries to introduce the new levy.

Finance Minister Wolfgang Schaeuble will discuss the proposal with his European counterparts at a regularly scheduled meeting June 22, added the Social Democrats' caucus leader Frank-Walter Steinmeier.

Britain, whose capital London is Europe's biggest financial hub, remains staunchly opposed to a Europe-wide financial transaction tax. The bloc's second-largest financial hub is Germany's Frankfurt.

Italian Prime Minister Mario Monti said later Wednesday during a visit in Berlin that the virtues and possible rewards of such a tax should not be overestimated.

"I think it should be for the whole of the European Union," Monti added, referring to the bloc's 27 members.

"Some say at least 17, that is the eurozone. I believe some transections will be lost to other places if it only applies to the borders of the eurozone, he said.

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Juergen Baetz can be reached on Twitter at www.twitter.com/jbaetz

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