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Merkel Ally Sees European Arms Merger Plan as Loss for Germany

July 2 (Bloomberg) -- The head of a business lobby allied with Chancellor Angela Merkel’s party said the planned merger of Kraus-Maffei Wegman GmbH and Nexter Systems SA shows Germany must do more to retain its defense industry.

Kurt Lauk, who heads the Christian Democratic Union’s Economic Council, said a restrictive stand on arms exports by Economy Minister Sigmar Gabriel is threatening Germany’s defense industry. Gabriel heads the Social Democratic Party, Merkel’s junior coalition partner.

“One shouldn’t be surprised that the arms industry is following the implicit call by the government to leave the country,” Lauk told reporters in Berlin today. “If you don’t want arms exports, you don’t need an arms industry” because sales to close military allies alone can’t sustain it.

Lauk’s comments reflect frustration in the CDU about its policy influence in Merkel’s third-term coalition that took office in December. A survey of 2,017 people who are council members showed 79 percent aren’t happy with the coalition’s achievements, according to a June 4-25 poll presented by Lauk today.

While promoting arms exports isn’t an economic-policy goal, Gabriel wants “a competitive German defense industry,” Economy Ministry spokesman Tobias Duenow said in an interview. The German-French merger is an example of European defense cooperation that “would seem to make sense” and Lauk’s portrayal is “not accurate,” Duenow said.

Krauss-Maffei Wegmann, the German maker of the Leopard II battle tank, and Nexter said yesterday they plan to combine. Gabriel is trying to block the sale of 800 Leopard tanks to Saudi Arabia, the Bild am Sonntag newspaper said in April, citing government officials it didn’t identify.

Germany was the third-biggest arms exporter behind the U.S. and Russia between 2009 and 2013, according to a report by the Stockholm International Peace Research Institute in March.

Inside the European Union, defense spending by member countries excluding Croatia and Denmark fell 0.6 percent to 189.6 billion euros ($259 billion) in 2012, declining for a fifth year, according to the European Defense Agency.

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Tony Czuczka

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