German right sees "battling" Merkel prevailing on euro

Reuters

By Stephen Brown and Sarah Marsh

European Central Bank

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"The chancellor must stick to her guns -- in the interests of Germany and of Europe," said the newspaper.

But while her supporters in the Bundestag (lower house of parliament) welcomed the assertiveness in Sunday's summit from a leader often accused of dithering, they also risked delaying Europe's response to the debt crisis at a crucial juncture by insisting on a full debate before Wednesday's second summit.

Her Christian Democrats' (CDU) floor leader Volker Kauder demanded a full debate rather than just a vote by the 41-member budget committee, which might have been quicker and less risky while still fulfilling new rules on consulting MPs.

"On such important questions it's good if parliament gives the chancellor broad backing for her negotiations," said Kauder regarding the vote due early on Wednesday.

As a result of a constitutional court decision last month, she cannot agree to changes to the 440 billion euro European Financial Stability Facility (EFSF) without at least an okay from the Bundestag's budget committee, which meets on Tuesday.

But it will now just make recommendations for Wednesday's full session, which Merkel will address before returning to Brussels for what should be a more decisive summit on boosting the firepower of the EFSF, raising the contribution of private banks to Greece's rescue, and getting European banks to increase their own capital to prevent contagion.

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"The chancellor negotiated well in Brussels. She showed strong leadership," Altmaier told reporters.

"The French president says he sees things just like Angela and I see that as progress," said the conservative premier of Hesse state, Volker Bouffier. "Germany and France must take the same line as the most important two countries."

Sarkozy ceded to German insistence at Sunday's summit that the ECB should not be used to fight the crisis, which poses an especially big threat to French banks and France's triple-A sovereign debt rating.

Instead, an EU paper obtained by Reuters suggested the euro zone would take up Germany's proposal of boosting the EFSF's firepower by using it as a form of debt insurance, combined with seeking help from emerging market economies like China and Brazil via a special purpose investment vehicle (SPIV) to prop up the euro zone's secondary bond market.

Merkel's spokesman Steffen Seibert said these two options, which had no ECB involvement, were the only two left on the table for leveraging the EFSF and would be discussed by the summit on Wednesday. He said they were not mutually exclusive.

Some of Germany's specialized press was less optimistic than Bild or Merkel's political operators about the European Union's chances of resolving the debt crisis in the 17-nation euro zone this week.

The Financial Times Deutschland said European governments' inability to persuade banks to take a bigger "haircut" on their Greek debt than the 21 percent so far "shows how difficult it will be to find a comprehensive solution" on Wednesday.

Business daily Handelsblatt said banks "will have to waive 60 percent of their Greek debt" rather than 21 percent. Juergen Trittin, parliamentary co-leader of the opposition Greens, said Merkel had told the briefing that the haircut for Greece would be "above 50 and below 60" percent.

(Additional reporting by Annika Breidthardt, Gernot Heller and Oliver Denzel; Writing by Stephen Brown; Editing by Catherine Evans)

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