Merkel Buffeted by Woes That May Deflect Crisis Effort

German Chancellor Angela Merkel is being buffeted by domestic political turbulence, threatening to distract her efforts to follow through on a European summit agreement last week to tackle the euro debt crisis.

Christian Lindner, the general secretary of Merkel’s Free Democratic coalition partner, unexpectedly quit yesterday amid a party tussle over bailouts. Separately, Merkel’s spokesman said the chancellor had full confidence in Christian Wulff, Germany’s president, after a Bild report that he misled lawmakers over a 500,000 euro ($650,000) home loan.

The political turmoil engulfed Merkel’s administration five days after she secured what she called a “breakthrough” European deal to enforce stricter budget rules and to stem the financial contagion now in its third year. That uncertainty may disrupt her efforts to restore market confidence by pushing the steps agreed on in Brussels through parliament in Berlin.

“The FDP and Wulff are a distraction in many ways,” Joerg Forbrig, an analyst at German Marshall Fund of the United States, said by phone. “The FDP is basically in the process of dismantling itself as a party while serving in government.” It’s “the last thing Merkel needs right now.”

Lindner, 32, resigned two years after taking the job as party members squabbled over an internal ballot coordinated by lawmaker Frank Schaeffler that seeks to build support among fellow bailout skeptics to reject the permanent rescue fund, the European Stability Mechanism.

Ballot Tally

Of the 21,500 votes required to trigger a change of party policy against bailouts, 19,000 were in place as of three days ago, Schaeffler’s office said today. The official result of the ballot is due tomorrow.

Merkel’s government would risk collapse if the referendum showed majority support among the junior coalition party for rejecting the rescue fund, said Peter Matuschek, an analyst at Forsa polling group. Even without such a scenario, “it will become tense over the next few weeks,” he said by phone.

Peter Altmaier, the chief whip for Merkel’s Christian Democrats, rejected any suggestion that Lindner’s resignation weakens the coalition and undermines Philipp Roesler, the economy minister and vice chancellor, who took over the helm as Free Democratic leader in April amid slumping support. Polls show voter backing for the FDP has failed to recover.

‘Broad Majority’

Coalition policy on the rescue fund will remain unchanged, Altmaier said in an interview today with broadcaster N24. The government already “has the backing of a majority in parliament and will continue to do so,” he said. “I’m convinced that we will have a broad majority” for measures to shore up the euro.

The political diversions came as Bundesbank President Jens Weidmann, Merkel’s former economic adviser, hinted the central bank may not provide its share of loans to the International Monetary Fund that was part of last week’s summit agreement.

“The Bundesbank has stated its readiness to provide up to 45 billion euros as long as there is a fair distribution of the burden amongst the IMF members,” Weidmann said in comments released yesterday. “If these conditions are not fulfilled, then we can’t agree to a loan to the IMF.”

Merkel’s chief spokesman, Steffen Seibert, was forced to respond to questions about both Lindner and Wulff’s loan from the wife of a businessman friend at a regular government press conference in Berlin, eclipsing queries on the coalition’s approach to combating the debt crisis.

Merkel “trusts him, his person and his conduct in office,” Seibert said.

Merkel Call

Merkel, in a phone call to the president yesterday, criticized his handling of questions surrounding the home loan and urged him to speak out publicly, Bild reported, without saying how it got the information.

Wulff issued a statement today saying that the loan he accepted when premier of Lower Saxony state may have created the “wrong impression” and he has “nothing to hide.” He said he is offering public disclosure of the documents surrounding the loan, which he took up in 2008 to buy a house with his wife.

Merkel fielded a question on Lindner’s resignation during a media briefing with Tajikistan’s President Emomali Rahmon yesterday, and dismissed the impact on her government.

“I believe that we can work together in the government completely unaffected,” Merkel said of the coalition allies, noting Roesler’s intention to quickly name a replacement. He later proposed the FDP treasurer, Patrick Doering, for the post.

Roesler stirred internal party anger by saying in a weekend interview that the members’ ballot had not drawn enough participants to establish a quorum. Lindner refused to answer questions yesterday as he quit, citing only the need “to make way to enable a new dynamic.”

The upshot for Merkel is “a dead-duck coalition partner whose actions may now become unpredictable,” Nils Diederich, a politics professor at Berlin’s Free University, said by phone. “That’s a risk for Merkel as she tries to navigate parliament through giving up some sovereignty in the name of fiscal union as well as increase taxpayers’ input into rescuing the euro.”