German Opposition to Back Fiscal Pact as Merkel Agrees Share Tax

Chancellor Angela Merkel bowed to opposition demands to speed up efforts to introduce a tax on share and bond transactions, overcoming a hurdle that’s held up German ratification of the euro-area’s new budget rules and sealing the country’s contribution to a new rescue fund.

With the timeframe narrowing for the government to pass the Fiscal Pact and bills setting up the European Stability Mechanism before parliament’s summer recess, Merkel agreed to ignore the lack of broad support in Europe for a financial-transaction tax and press ahead to find backers, said Frank-Walter Steinmeier, the opposition Social Democratic Party floor-leader.

“Merkel agreed that if we cannot get 27 states to back the tax then at least a coalition of the willing that comprises a minimum of nine states,” Steinmeier told reporters today after a three-hour meeting with Merkel in Berlin, attended by his SPD and opposition Green party leaders.

As parliament nears its last scheduled session on June 29, the SPD and Greens narrowed a list of demands for Merkel as conditions for backing the fiscal pact. Merkel says the tax, dubbed the FTT, needs as broad an implementation as possible to ensure that member state adopting it aren’t placed at a competitive disadvantage.

“Failing to get the support needed for the fiscal pact and the ESM would have sent a fatal signal to markets,” Rainer Bruederle, floor leader of Merkel’s Free Democratic Party ally, told reporters after the talks. Euro-area leaders agreed in March to operate the ESM starting next month.

Opposition Votes

Merkel needs a two-thirds majority in both houses of parliament to secure passage of the pact that has the legal status of a treaty, forcing her to rely on opposition support. The main opposition parties have signaled that they’ll back four bills linked to the ESM, which will also be put to a vote on June 29 and require only simple majorities.

The government is still at loggerheads with Germany’s 16 states, represented in the upper chamber in Berlin, the Bundesrat, and must address their demands before the June 29 vote. The states, while signaling readiness to support the bill, are worried that its ratification would require them to balance their budgets from 2014 in contrast to a 2020 target set by the constitution.

Steinmeier said Merkel agreed to implement the European Commission’s FTT proposals for a 0.1 percent tax on share and bond trades and a 0.01 percent levy on derivative transactions.

The commission, in a October 2011 paper, estimated that the tax would generate 55 billion euros ($69.8 billion) in annual revenue if implemented by all 27 European Union states. The levy would also cut about 70 percent of the bloc’s derivative trade, the commission said.

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