German Government Split Over EU Stability Pact Enforcement

The New York Times

BERLIN (Reuters) - The German government tried to paper over cracks within the ruling coalition on Friday about a Franco-German agreement to jettison demands for automatic enforcement of European Union budget rules.

Chancellor Angela Merkel said she and Foreign Minister Guido Westerwelle, head of her Free Democrat coalition partner, agreed that changing the EU treaty is an "important goal."

But she did not address his criticism about looser enforcement of the stability pact.

Earlier her spokeswoman Sabine Heimbach said Merkel and Westerwelle "have the same line" on reforms of the EU's stability pact, even though Westerwelle has publicly called for sanctions to punish high deficits.

In a surprise deal struck in the French town of Deauville, Germany secured a commitment from France to support the idea of reforming the EU's fundamental treaty in exchange for backing a bid by Paris to change the way EU budget rules are enforced.

Merkel has been accused of selling out to French President Nicolas Sarkozy. Westerwelle's FDP argue German taxpayers who helped bail out Greece were promised automatic sanctions on future debt sinners.

Instead, it will take a political decision by a qualified majority of euro zone governments to start disciplinary action against any state with an excessive deficit or debt level, and a majority of countries can still block any financial sanction.

"The chancellor and the foreign minister have the same line that progress on the package -- and not focussing on one issue -- can be the breakthrough for the talks in the EU," Heimbach told a government news conference.

She and Westerwelle's spokesman acknowledged the FDP leader had spoken out at a cabinet meeting against the Franco-German deal to drop demands for automatic enforcement of budget rules.

Westerwelle said in a speech late on Thursday that tighter rules for the stability pact were needed. "It's crucial that sanctions are not subjected to politics," he said.

Merkel said: "We agreed with the French president to seek treaty changes, and the Union and FDP agree this is an important goal." EU leaders will see the results next week of work led by European Council leader Herman Van Rompuy on budget rules, which she said "is seen by the foreign minister and myself as good work."

But a senior FDP finance expert, Volker Wissing, told Reuters that Merkel had to take into account Westerwelle's demands for tighter enforcement of the stability pact.

"It's not on that the FDP criticism gets ignored inside the government," he said.

Germany wants to change the Lisbon treaty, which came into force last December after years of negotiation, to make sure it incorporates a permanent system for handling financial crises, such as another sovereign debt collapse.

The EU has only a 750 billion euro temporary mechanism created in May this year to handle the fallout from Greece's debt problems. The mechanism runs out in mid-2013.

The German government is uncomfortable with the European Financial Stability Facility because it comes close to violating a Lisbon clause that prohibits financial bailouts.

EU leaders will meet in Brussels October 28-29 to sign off on the new budget rules and discuss treaty changes.