German SPD drops debt fund demand, talks on bank union continue


BERLIN, Nov 11 (Reuters) - Germany's Social Democrats (SPD)have dropped their demand for a euro zone debt redemption fundin coalition talks with Angela Merkel's conservatives, but thecamps still have work to do to finalise a deal on banking union,both sides said on Monday.

The centre-left SPD supported the idea of common euro zonebond isuance during the height of the euro crisis, beforeshifting its stance early this year and backing the debt fundidea, originally floated by Germany's "wisemen" council ofeconomic advisers.

But both ideas are considered taboo by Merkel'sconservatives and the SPD was never expected to push hard on thedebt issue in the talks, in part because the borrowing costs ofstruggling southern euro members have fallen sharply over thepast year, reducing the need for radical steps.

"There will be no debt mutualisation - that was theexpressed desire of the conservatives," said Martin Schulz, theEU parliament president and a leader of the SPD's negotiationteam in Berlin.

In exchange, the conservatives agreed to back an SPDproposal for a minimum wage corridor throughout the EU, theyMichael Stuebgen of the conservatives and Axel Schaefer of theSPD told Reuters.

Schulz said there was still work to do on the question ofEuropea bank resolution after Reuters reported on Saturday thatthe two sides had struck a preliminary deal under which a bodyattached to the council of European finance ministers, not theEuropean Commission, would decide when to close failing banks.

"We're simply not finished yet with the banking union,"Schulz said.

Several sources involved in coalition talks between theparties had told Reuters that while a number of legal questionsstill needed to be resolved, the aim was to sign off on anagreement on bank resolution this week before Finance MinisterWolfgang Schaeuble heads to a meeting with his EU colleagues onThursday.

But Martin Kotthaus, Schaeuble's spokesman, played down theneed for a deal this week, saying the only firm goal was toreach an agreement at EU level by year-end.

"It's news to me that we wanted to conclude the topic ofbanking union this Thursday," he said.

Uncertainty over Berlin's banking union stance in the wakeof a September election has sowed doubts about whether the bloccan meet the year-end deadline.

Merkel's Christian Democrats (CDU) emerged from the Sept. 22vote as the largest political force but need a coalitionpartner. They are expected to conclude a deal with the SPD byChristmas, but banking union has been one of the most divisiveissues in their talks.

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