By Sarah Marsh
BERLIN (Reuters) - Germany's opposition Social Democrats (SPD) will back new euro zone budget discipline rules on condition the government agrees extra measures like a financial transaction tax, SPD leader Frank-Walter Steinmeier told a German daily.
Chancellor Angela Merkel requires a two-thirds majority in both houses of parliament to get new euro zone budget discipline rules approved at home, given that they would affect national sovereignty, making her dependent on the opposition.
Despite having backed her in the past on crisis decisions such as bailout packages for Greece, the opposition parties are now demanding concessions in exchange for their support.
"We did not refuse her our approval for the European support measures. Whether this is equally valid for the fiscal treaty will depend considerably on whether the government is open to additional measures," Steinmeier told the Frankfurter Rundschau, noting he was waiting for the government's response to the SPD's demands, and talks were only just beginning.
"Additional measures to promote economic growth...must urgently be agreed. For this, you would obviously need the funds that must come from things like a tax on financial markets," he added. "You also need special rules for countries in dire straits for the payment of structural funds."
European leaders have said they plan to map out a financial transaction tax by March but Merkel's cabinet is divided over whether this could be introduced within the euro zone if Britain rejected a European Union wide tax.
The junior partners within her centre-right coalition, the Free Democrats (FDP), have said they will only accept the tax across the EU. But Wolfgang Kubicki, the FDP head in Schleswig-Holstein, urged his party to show willingness to compromise.
"The FDP would not lose face if it agreed to the introduction of a financial transaction tax in the 17 euro states to begin with," he was quoted as saying by the Frankfurter Allgemeine Sonntagszeitung.
Norbert Barthle, the budgetary expert of Merkel's conservatives, told the same daily he believed it was possible the FDP could reconsider its position: "If there are signs that the introduction of a financial transaction tax within the euro zone is possible, the FDP would not refuse it."
The SPD's Steinmeier added that Berlin should also be willing to discuss the proposal of Germany's panel of independent economic advisers for a euro zone redemption fund.
The so-called wisemen, whose views are not necessarily taken on board by the government, said last year the European Central Bank's bond-buying program was putting its credibility at risk and one alternative would be to set up a "redemption pact."
This would involve countries with sovereign debt above 60 percent of GDP pooling their excess debt into a redemption fund with common liability. They would commit to reforms and see their debts repaid over 20-25 years.
The EU has said the idea is worth further scrutiny although Merkel initially responded that such a mechanism would require changes of European treaties and would be "impossible to implement in reality.
Steinmeier said the government's plan to have the parliament ratify the law on the euro zone's fiscal pact by the end of May could prove too ambitious.
(Additional Reporting by Klaus-Peter Senger; editing by James Jukwey)