BERLIN—Germany's main opposition Social Democrats on Thursday sharply attacked Chancellor Angela Merkel's austerity cure for Europe and threatened to block ratification of the fiscal pact and euro-zone firewall unless the government does more to promote economic growth and jobs in Europe.
In a debate that largely reflects the fault line dividing Europe in the crisis, Germany's main opposition parties have picked up the arguments of European critics of Ms. Merkel's austerity drive, from François Hollande, French challenger for the presidency in upcoming elections, to Mario Monti, the Italian prime minister who has called for growth incentives to accompany budget slashing.
Representatives of the German government argue that Berlin's policy of one-size-fits-all budget reform in the form of a German-style debt brake to limit new borrowing is having positive results in countries like Ireland and Portugal. But the opposition pointed to once-healthy countries such as France and the Netherlands that are struggling with rising deficits as growth dries up in Europe.
"The deficits of today are the problems we will face tomorrow," Frank-Walter Steinmeier, a former German foreign minister and leader of the opposition Social Democrats, said in a speech in the German parliament. "Budget discipline is necessary. But if all 27 countries in the European Union are doing nothing but mindlessly saving there can be no growth."
The German debate is more than just a bout of parliamentary shadow boxing. Ms. Merkel needs the votes of the opposition to provide the two-thirds majority needed to ratify the European fiscal pact. It is still unclear if she also needs a two-thirds majority to ratify the European Stability Mechanism, the permanent euro-zone bailout fund.
The debate on Thursday kicks off a parliamentary process that will culminate in a vote on the fiscal pact and the ESM, perhaps as early as May. Without opposition support, ratification of the fiscal pact and approval for a higher firewall are uncertain. The SPD wants Merkel to add further growth-boosting measures and to persuade Europe to introduce a tax on financial transactions. Revenue from the tax would be used to promote growth programs in trouble EU countries.
"Those who say that the SPD will just cave in in the end are fooling themselves," Mr. Steinmeier warned. "We want a Europe that creates growth. We don't want a Europe in which every second young person is unemployed."
German Finance Minister Wolfgang Schäuble defended the government's austerity policy, saying Ireland and Portugal were making progress and that the Greek debt restructuring, including a haircut of 53.5% on Greek bonds owned by private sector investors, was successful. Italy and Spain, said Mr. Schaeuble, had both made efforts to fend off the crisis by reducing their budget deficits and implementing structural reform. By doing so, said Mr. Schaeuble, Europe is fighting the root cause of the crisis—unsustainable levels of sovereign debt.
"There is a change in Europe in the direction of putting sovereign debt on a sustainable basis," Mr. Schaeuble told the German parliament.
Under pressure from opposition parties to push for a European-wide financial transaction tax, Mr. Schaeuble repeated that without support for such a tax in other European countries the chances of achieving a tax were slim.
Chancellor Angela Merkel's center-right coalition reached a compromise with opposition parties on Tuesday to give the Bundestag lower house of parliament a greater say in euro bailout decisions, in line with a requirement by the country's highest court for stronger parliamentary involvement.According to legislation drafted by the ruling conservative Christian Democrats and Free Democrats, along with the opposition Social Democrats and Greens, the whole parliament will decide on bailouts, even in urgent cases, contrary to earlier plans for a small parliamentary panel to give swift approval.
Only when secret steps need to be taken, such as the purchase of government bonds in the secondary market to aid troubled states, will approval be left to a small panel representing parliament. That will ensure the confidentiality required for the operation to have the desired impact on financial markets.
The SPD and Greens said the coalition parties had bowed to their demands. "This is a success for parliamentary democracy," said Volker Beck, a senior member of the Greens' parliamentary group. After initial resistance, said Beck, the coalition "gave in to the Greens' demands on virtually all points."
The list of cases in which a plenary session of parliament would be required to give its approval had been extended, said Beck.
"I'm pleased that the coalition now supports the SPD's proposals on strengthening the rights of parliament concerning the euro bailout fund," said SPD parliamentary manager Thomas Oppermann. He welcomed that "as a rule the whole Bundestag will decide on providing billions for the rescue of the euro." The measures would become "more transparent and easier to understand for people," he said.
Last month, the Federal Constitutional Court ruled that a planned nine-member special panel of lawmakers created last year to approve quick bailout decisions did not provide sufficient parliamentary involvement.
Opposition Delays German Vote on Fiscal Pact
Separately, the main opposition parties on Tuesday rejected plans by Merkel's government to push a European pact on budget discipline, the so-called fiscal pact, through parliament by June, saying more time was needed to complement it with measures to boost growth.The pact, agreed on by the leaders of 25 of the 27 EU countries to tackle the debt crisis by ensuring long-term budget discipline, requires a two-thirds majority in the German parliament to pass, meaning Merkel is dependent on the opposition.
Merkel's original plan was to link the vote on the pact to legislation authorising Europe's permanent bailout facility, the European Stability Mechanism (ESM), with both going to the Bundestag in May and the Bundesrat upper house in June.
But opposition parties said Merkel had put too much emphasis on austerity in her euro rescue strategy, and had not focused enough on getting struggling countries such as Greece out of ther deep recessions. They are pushing for additional policies to stimulate growth as a condition for approving the pact.