Merkel dogged by coalition tensions over Greece

By Michelle Martin and Noah Barkin BERLIN (Reuters) - German Chancellor Angela Merkel tried to restore calm to her coalition government on Sunday after tensions tied to bailout negotiations with Greece burst out into the open, laying bare resentment among the highest-ranking ministers in her cabinet. Her vice chancellor Sigmar Gabriel, who is also economy minister and leader of the Social Democrats (SPD), coalition partner to Merkel's conservatives, broke ranks and criticised Finance Minister Wolfgang Schaeuble for raising the prospect of a Greek exit from the euro zone in the rescue talks. Schaeuble, the influential 72-year-old minister who has pressed a hard line with Greece for months, was unrepentant and even suggested that he would be prepared to step aside if Merkel objected to his negotiating tactics. The rare public feuding underscored the toll that months of hard-fought talks with Greece has taken on Merkel's coalition, which has come under harsh criticism abroad for dangling the prospect of a "Grexit" as it pushed Athens to agree to a long list of economic reforms. The Greece saga has also stretched Merkel, Europe's most powerful leader, to the political limit. Schaeuble's hardline stance and deep scepticism towards Greece in the German population has pushed her towards a tough line at a time when Gabriel's SPD and key European partners like France favoured a more conciliatory approach. In an interview with German public broadcaster ARD on Sunday, she tried to play down the friction, saying all members of her coalition would work to implement the deal struck last week with Greece. "The finance minister will, like me, conduct these negotiations and I can only say that no one came to me and asked to be relieved," she said, when asked about the Schaeuble resignation threat. Gabriel, in an interview with broadcaster ZDF, referred to a "huge conflict" between Schaeuble and Merkel, and criticised the finance minister, who is a member of the chancellor's conservative party, for suggesting that Greece take a five-year "time-out" from the euro zone to address its economic problems. "In my opinion it wasn't sensible to make this suggestion as a German suggestion," said Gabriel, referring to it as a provocation to his party. "I'd say one should have done that differently, especially as he knew that we Social Democrats are only prepared to talk about Greece leaving the euro zone solely in the case that the Greeks want that themselves," Gabriel said. RESIGNATION THREAT Schaeuble, in an interview with weekly magazine Der Spiegel, was asked about differences of opinion with Merkel over Greece and appeared to signal that he would rather resign than be forced to defend a position he didn't believe in. "Politicians' responsibilities come from the offices they hold. Nobody can coerce them. If anyone were to try, I could go to the president and ask to be relieved of my duties," Schaeuble said. The veiled threat was unusual coming from Schaeuble, who despite a difficult history and occasional disagreements over tactics, has remained loyal to Merkel throughout the euro crisis. In recent months, his hard line has made him a darling of the Greece-sceptic conservative wing of Merkel's Christian Democratic Union (CDU) and losing his support would be a serious blow to her. A YouGov poll published on Sunday showed that a majority of Germans disapprove of the planned deal with Greece, in which it would agree to implement far-reaching reforms in exchange for up to 86 billion euros in aid. Around one in two would have preferred to see the troubled country quit the euro zone. In the ARD interview, Merkel reiterated that Greece could not be granted a "haircut", or face value writedown of its debt, as long as it remained a member of the euro zone. But she raised the prospect of extending the maturity of Greek debt or slashing the interest rates on loans if the first review of a third bailout was successfully completed. In comments that are likely to please British Prime Minister David Cameron, Merkel also called for changes to be made to the EU treaty, saying an overhaul was needed to enshrine closer economic cooperation and embed legislation on Europe's rescue fund, known as the European Stability Mechanism (ESM). Cameron is pushing for a commitment to treaty change before a British referendum on its EU membership, most likely in 2017. "There are a lot of member states that are worried about touching the treaties. This concern shouldn't prevent us from doing what is right and important," she said. (Additional reporting by Holger Hansen; Editing by Jon Boyle and Noah Barkin)