Merkel’s FDP Allies Bash Euro Bailouts

German Chancellor Angela Merkel’s Free Democratic allies are threatening to impose more conditions on future euro-area bailouts as they seek to tap voter anger over granting aid to reverse the party’s collapse in support.

Delegates at a party convention beginning today in the Baltic Sea port of Rostock will debate a motion on the euro that says “in no case whatsoever” can Germany assume the debts of other countries and demands investors pay part of the bill for any aid given to indebted states. A separate motion urges debt offenders to be ejected from the euro area.

“We’re at a crossroads,” Otto Fricke, the FDP’s budget spokesman in parliament, said in an interview. “We need to show we’re the other voice in the coalition and that may mean taking a tougher stance on the debt crisis where necessary.”

Merkel’s coalition partner’s threat to disrupt bailouts adds to her dilemma as she confronts a resurgence of the debt crisis where it started, Greece. Just as she did a year ago, Merkel is again holding out against aiding Greece, leaving a policy void that the Free Democrats are looking to exploit.

Greece’s two-year yield notes rose to a record 26.77 percent yesterday, as Merkel and fellow European leaders failed to allay concern that the Greek government will have to restructure its debt. The yield later fell 49 basis points to 24.80 percent.

“A good many Free Democrats share the view in private that something is going badly wrong in solving this crisis, that we are heading full speed toward creating a permanent system of transferring aid to the currency area’s periphery,” said Frank Schaeffler, an FDP lawmaker who last year called for Greece to sell its islands to cut debt. “A year ago I was isolated in the party, but that’s no longer the case.”

‘Short Notice’

Schaeffler heads a group of lawmakers who will ask the party’s 662 delegates in Rostock to support a motion calling for the ejection of states from the euro “at short notice” in cases of rule breaking. While the motion has little chance of being passed, “that doesn’t mean we won’t be heard,” he said.

Schaeffler’s supporters may be tapping a vein of resentment in Germany. Twenty percent of Germans view Merkel’s decision to help Greece in May 2010 as “right,” according to a poll published May 8 by consumer survey company GfK SE. Another 47 percent of respondents said the decision was “wrong,” suggesting that Merkel’s coalition may struggle to justify potential new aid.

The Free Democrats, who won a record 14.6 percent of the vote in the September 2009 federal election, have seen their ratings tumble to historic lows amid bickering over policy, an unpopular leadership and failure to deliver their core policy of tax cuts.

Merkel Frustrated

The collapse of the FDP threatens to deprive Merkel of a viable coalition partner, frustrating any desire she may have to run for a third term in 2013. The FDP’s poor showing in March state elections contributed to Merkel’s Christian Democrats losing their 58-year grip on Baden-Wuerttemberg, home to Daimler AG, Porsche SE and SAP AG.

Philipp Roesler, 38, who is standing for election as FDP chairman in Rostock, has been charged with reviving party fortunes after it suffered successive routs in the four state elections so far this year. A fifth, in the city-state of Bremen, is scheduled for May 22.

Roesler, a doctor by training who served as health minister before replacing Rainer Bruederle as economy minister yesterday, has the backing of senior party members to take over the FDP helm from Foreign Minister Guido Westerwelle. Westerwelle said April 3 that he wouldn’t stand for re-election as party leader after 10 years in the post. He intends to stay on as foreign minister.

Poll Ratings

The change in personnel has so far failed to lift the party’s poll ratings. Support for the FDP was 4 percent, below the 5 percent threshold for seats in parliament for the sixth consecutive week, a Forsa poll showed on May 11. While Merkel’s CDU remained the strongest party with 31 percent backing, the ruling coalition trails the opposition Social Democrats and Greens by 35 percent to 48 percent.

The party of Hans-Dietrich Genscher, the foreign minister who oversaw German reunification in 1990 after the fall of the Berlin Wall, “won’t garner points by fanning anti-euro sentiment,” said Hans-Juergen Hoffmann, head of the Psephos polling company.

“That’s not credible from a party that has so long been an advocate of European unity,” Hoffmann said by phone. “The FDP is in deep trouble.”

To contact the reporter on this story: Brian Parkin in Rostock, Germany at bparkin@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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