BERLIN (Reuters) - In a gesture all too rare in election years, former chancellor Gerhard Schroeder has lavished praise on his successor and political adversary Angela Merkel for "leading with restraint" in Europe.

In an interview with Der Spiegel magazine, Schroeder complimented Merkel on the way she had not ducked away from leading Europe through the euro zone crisis now, though he said her initial hesitation several years ago made the single currency's rescue efforts more expensive than they had to be.

Schroeder, a former leader of the center-left Social Democrats (SPD) who ruled from 1998 to 2005, said some members of Merkel's conservative party had needlessly raised fears in Europe about German leadership, such as her parliamentary floor leader Volker Kauder who last year said "Europe speaks German".

Schroeder, who has endorsed the SPD chancellor candidate in the race against Merkel in September elections, said she was now doing a decent job.

"Mrs Merkel rather belatedly made the necessary decisions on rescue efforts and for solidarity in the EU," Schroeder said. "That certainly made the euro rescue efforts more expensive. But she hasn't rejected Germany's leadership role; rather she is leading with restraint. And to my mind that's a good thing."

Germany, the largest economy in Europe and the euro zone's paymaster, is sometimes criticized for not showing enough leadership. But at other times it is admonished for throwing its weight around too much - most recently during the Cyprus crisis.

"As chancellor I had to learn that Germany can only lead in Europe the same way porcupines mate," Schroeder said. When asked how porcupines mate, Schroeder replied: "Very carefully."

He added: "The other countries expect Germany to lead, but not to show off superiority. Comments like 'Europe speaks German' are not helpful at all."

Because of its military past and the two world wars it started in the 20th century, Germany has long been reluctant to lead. Many European countries also bristle at German leadership.

Luxembourg's foreign minister accused Germany on Tuesday of "striving for hegemony" in the euro zone by telling Cyprus what business model it should pursue. Germany insisted that wealthy depositors in Cyprus' banks contribute to the island's bailout.

Foreign Minister Jean Asselborn told Reuters that Germany did not have the right to make decisions for other countries and accused it in an interview with Reuters of "striving for hegemony, which is wrong and un-European."

The 68-year-old Schroeder, who has largely stayed away from politics since leaving office eight years ago but has begun to comment more frequently on issues again ahead of September's election, said more was being demanded of Germany now because of its economic clout and growing political importance.

(Reporting By Erik Kirschbaum; Editing by Stephen Powell)