German opposition: Merkel embraces growth pact

Germany's opposition leader said Thursday that Chancellor Angela Merkel has accepted the need to add a separate set of measures promoting growth to the European Union's treaty enshrining fiscal discipline.

Sigmar Gabriel told reporters after a two-hour closed-door meeting between Merkel and top lawmakers that the government has "significantly moved toward accepting a pact for growth and investment."

For Germany to formally approve the so-called fiscal pact, Merkel's center-right government needs the support of opposition parties to secure a two-thirds majority in Parliament.

"The government's blockade on this issue has been broken," Gabriel said. "We see a whole range of possibilities alongside the fiscal pact to do something to foster growth and employment in Europe, especially in fighting youth unemployment," he added.

One of Merkel's top allies, conservative parliamentary caucus leader Volker Kauder, confirmed that both sides will now work out proposals and meet again June 13, also to tackle "the question how a concrete growth strategy will look like."

Gabriel's Social Democrats — emboldened by similar demands by France's new center-left President Francois Hollande — have said they would only vote for the called fiscal pact if it is amended to include an economic growth pact.

Hollande's election this month shifted the political tide in Europe away from talk about austerity measures toward ways of fostering growth as Europe is on the brink of a recession, with southern European nations such as Greece, Portugal or Spain particularly hard hit.

Merkel recently also started talking about spurring growth, although she strictly opposes the idea of fostering growth through more spending, saying it would only make Europe's debt woes worse. Instead, she maintains that growth can be fostered through a more effective use of existing EU funds and implementation of structural reforms.

Previously, the conservative chancellor also refused to link the ratification of the fiscal pact to growth-promoting measures.

"The government has realized today that it can only win France's approval and a two-thirds majority in Parliament through changing its position," said parliamentary caucus leader Juergen Trittin of the opposition Greens.

However, it remained unclear Thursday what exactly a growth pact would entail, and whether Merkel has accepted that more spending might be necessary.

The EU's 27 leaders discussed the issue at an informal summit Wednesday in Brussels, but failed to reach an agreement on a set of measures which is set to be decided at another formal summit late next month.

Joerg Asmussen, a member of the European Central Bank's executive board, backed Merkel's stance in a speech in Poland Thursday, saying it cannot be a solution "to fight debt with more debt."

"No one is against growth, but growth cannot be achieved by spending programs which fuel the economy for a quarter or two but are no more than a flash in the pan," he said according to prepared remarks, instead calling for pursuing a path of fiscal consolidation and reforms that will eventually foster sustainable growth.

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 June. The legislation for the new firewall, the European Stability Mechanism, must pass by late next month because the ESM is set to start operating on July 1.

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

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.

However, Merkel is a pragmatic politician who embraces the art of compromise, be it on the European level or at home where she often needs to win over the opposition, which has a majority in parliament's lower house representing the German states.

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.


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