March 24 (Bloomberg) -- German Chancellor Angela Merkel said Portuguese Prime Minister Jose Socrates did the right thing in putting a “far-reaching” program of austerity measures to parliament, even as it crippled the government and brought a bailout one step nearer.
Merkel, in a speech to lower-house lawmakers in Berlin today, said Socrates had been “courageous” in presenting an additional round of budget cuts, and that she was “grateful” to him for taking responsibility for his country’s finances.
“I regret that there wasn’t a parliamentary majority for it,” Merkel said, outlining her stance before a two-day European Union summit in Brussels on the debt crisis. The proposed Portuguese cuts, announced at the last EU summit on March 11, were supported by the EU and European Central Bank, she said.
Merkel repeatedly made the case to German lawmakers for a package of measures to be ratified by EU leaders to tamp down the sovereign crisis. Portugal was pushed closer to following Greece and Ireland in seeking an international bailout after parliament last night rejected plans to cut the budget, prompting Socrates to tender his resignation.
Portuguese bonds led a slide by securities of the most indebted European nations. Two-year Portuguese yields reached the highest since 1999, and Spanish bonds fell.
The euro rallied after slipping earlier today. The single currency was 0.2 percent stronger at $1.4120 at 9:46 a.m. in London, erasing a 0.3 percent drop.
Filling in Gaps
Merkel told lawmakers that there is no alternative to budget prudence, bolstering competitiveness and “filling in the gaps” on the rules governing the euro. It’s right to insist on tough conditions and “lots of reforms” in return for “solidarity,” she said.
She said she will press EU leaders to allow five annual payments into the permanent rescue fund from 2013 rather than the four envisaged at present.
Merkel, whose Christian Democrats and their FDP coalition partner trail the opposition before a March 27 election in Baden-Wuerttemberg, faces domestic pressure from voters and political allies to curb German payments to help debt-wracked euro-area neighbors.
“What’s wrong with the chancellor?” the best-selling Bild newspaper asked in a headline today, saying that she’s conducted a “flip-flop” in her policy on defending euro, as well as on extending nuclear plant lifespans and on the allied air attacks on military installations in Libya, which she refused to join.
‘Crisis in Leadership’
“The euro crisis is also a crisis in leadership and credibility,” Peer Steinbrueck, the Social Democratic finance minister in Merkel’s first-term government, told lawmakers. Referring to Merkel, he said “Since the outbreak of the Greek crisis, you’ve pulled off far too many about-faces and pirouettes.”
He pilloried Merkel for going back on her initial position on most elements of the debt crisis, saying she had backtracked on withholding Greek financial aid, assembling a bailout fund, automatic sanctions on indebted nations and forcing banks to contribute to sovereign defaults.
That stance was echoed yesterday by Kurt Lauk, who heads a business lobby within Merkel’s CDU. The chancellor is preparing to agree at the summit to a “transfer union” from richer states to poorer ones, when she should be insisting on “painful structural reforms.”
“I would rather focus on the growing competitiveness in Europe than constantly having to worry about rescue programs for other countries,” Merkel said in her speech. “We’re ensuring that Europe as a whole improves.”
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