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Bavarian revolt over euro bailout threatens Merkel’s coalition government

Bavarian State Premier Horst Seehofer and head of the Christian Social Union (CSU) is surrounded by media during his arrival in the Bavarian state parliament in Munich July 17, 2012.

Michaela Rehle/Reuters

Until now, it seemed that the greatest threats to the future of the euro were the collapsing economies of Greece, Italy, Spain and Ireland. But in recent days, a less likely threat has emerged: Bavaria.

This southern German state, known for its staunchly conservative politics, has launched a multi-pronged mutiny against German Chancellor Angela Merkel, her efforts to build a bailout plan for the euro economies, and the whole notion of European integration.

The rebellion, which has the potential to bring down Ms. Merkel's coalition government, is led by two stalwart Munich conservatives who had once been strong backers of the Chancellor and her conservative Christian Democratic Union.

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It began when Bavarian Premier Horst Seehofer, who is also the head of the Christian Social Union (CSU), the Bavarian branch of Ms. Merkel's party, declared two weeks ago that he would pull all the Bavarian seats out of Ms. Merkel's coalition if she allowed the European Stability Mechanism to finance bailouts of more countries.

Without the backing of Mr. Seehofer's bloc, Ms. Merkel would not have a majority in parliament and would rely on the wavering support of the left-wing opposition parties.

"The time has come when the Bavarian government and the CSU can no longer say 'yes' any more," Mr. Seehofer told reporters, "and the coalition has no majority without the CSU's seats."

While Mr. Seehofer is known for such bombastic declarations – and he has reason to be distancing himself from Ms. Merkel because he faces a difficult re-election campaign next year – most observers feel that he has tapped into a nerve of public discontent over Germany's economic responsibilities toward the European countries that form the main market for its exports.

"German politics have always been largely consensus-driven, and just as it seemed all the parties were agreeing that more European unification is something good and right and everyone should support it, Seehofer has come in and really opened up the debate and challenged everything," says Almut Moller, an analyst with the German Council on Foreign Relations.

Indeed, on Tuesday Mr. Seehofer launched another attack on Ms. Merkel by asking Germany's constitutional court to challenge the legality of Germany's own internal "solidarity transfers," in which wealthy states like Bavaria pay about $9-billion a year to help the impoverished states of the former East Germany.

While ostensibly a matter of internal German politics, many Germans saw it as an indirect attack on aid to crisis-ridden European countries.

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"There is a real mood among many voters in Bavaria that they don't want to pay for the rest of Germany, and even less do they want to pay for the rest of Europe," said Mr. Moller. "It is a message that many people in Germany will recognize."

Indeed, a poll this week conducted by Stern magazine showed that 60 per cent of German voters oppose giving up any fiscal sovereignty in order to preserve the euro.

The second attack was launched last week by the outspoken Munich economist Hans-Werner Sinn, who organized a widely published letter signed by 190 other conservative economists that condemned Ms. Merkel for allowing the euro-zone bailout fund to create a "banking union" in which troubled banks will be subject to common funds and standards – another key component of Ms. Merkel's euro package.

The letter warned that "taxpayers, retirees and savers in the still-solid countries of Europe" would be unfairly burdened by the rescue of economies in the periphery and that the policy would result in catastrophe. The Munich revolt has shown that Germany's consensus is far from stable and that a significant number of people, including some senior officials, are more interested in maintaining national sovereignty than in taking the measures that would prevent a euro failure.

"I wanted to initiate a public debate about the consequences of a banking union," said Wolfram Richter, an adviser to Germany's finance ministry who signed Mr. Sinn's letter. "I feel there is a need to discuss whether the people of Europe are ready to give up national autonomy for the sake of the common currency."

Mr. Sinn and his Munich-centred movement have struck a chord with voters, and many see Mr. Sinn's interventions as the vanguard of a political movement that is likely to play a strong role in German politics during the next year.

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