Merkel Allies Slam Barroso Comments on Easing Euro Austerity

Chancellor Angela Merkel’s allies in the German parliament condemned European Commission President Jose Barroso after he said austerity had reached its limits and should be eased to make way for growth.

Norbert Barthle, the budget spokesman for Merkel’s Christian Democratic Union in the lower house, or Bundestag, said Barroso’s comments made in Brussels yesterday had “upset me greatly.”

“A departure from a strict course of budget consolidation in Europe would be a fatal signal,” Barthle said today in an e-mailed statement. Such a shift would show “that we aren’t really serious about reforming our countries,” he said.

Merkel, facing re-election in five months, has come under pressure from Group of 20 allies to alleviate her push for spending-reduction measures as Europe confronts a second year of recession and record unemployment. Rejection of any shift in course by her faction in Berlin underscores the difficulty Merkel faces in addressing such concerns in an election year.

Hans Michelbach, a lawmaker with Merkel’s CSU Bavarian sister party, told Handelsblatt newspaper that Barroso’s comments contravene the position of EU heads of government and finance ministers and “send absolutely the wrong signal.”

“Those who still believe that more debt leads to more growth have learned nothing from the current crisis,” Michelbach told the newspaper in an interview published today.

‘Fatal Signal’

Volker Wissing, a legislator with the chancellor’s Free Democratic Party coalition partner, also took aim at Barroso, saying that his comments risked preventing indebted euro-area countries from returning quickly to the market.

“Whoever calls for more time or more money prematurely sends a fatal signal to the financial markets about the ability of these countries to reform,” Wissing told Handelsblatt.

Barroso told an audience in Brussels yesterday that European leaders’ focus on budget consolidation had run its course and needed to be moderated. “We are reaching the limits of the current policies” as a sputtering economy requires more flexibility and growth measures, he said.

“While this policy is fundamentally right, I think it has reached its limits in many aspects, because a policy to be successful not only has to be properly designed,” Barroso said. “It has to have the minimum of political and social support.”

Merkel herself redoubled Germany’s defense of consolidating budgets in several speeches over the past week, dismissing the notion of debt-fueled spending as compounding the problem of excessive deficits. “All of that is false,” Merkel said on April 16.

The following day she was asked again about austerity.

“We always talk about austerity -- that’s the new word that’s often used -- but forget that we never talk about the fact that we have to pay back debt,” the chancellor said.

Before it's here, it's on the Bloomberg Terminal.