Merkel shrugs off election setback

Germany's Angela Merkel has insisted that a bad local election defeat for her party will not weaken her as she grapples with Europe's deepening debt crisis.

Facing an emboldened opposition at home as a national vote looms next year, Mrs Merkel made clear that she was sticking to her emphasis on budget discipline. However, she said "no one on our side has anything against growth."

Mrs Merkel, who this week must start building a relationship with France's new Socialist president, saw her Christian Democratic Union suffer its worst election result in North Rhine-Westphalia - Germany's most populous state - since the Second World War. Voters strengthened a regional government run by Germany's main opposition parties that her conservatives portrayed as irresponsibly spendthrift.

Mrs Merkel conceded that it was "a bitter, painful defeat" but was at pains to downplay it as largely a regional event.

But while a popular centre-left governor and a poor campaign by the conservative challenger played a part, it was the latest in a string of poor state election showings over the past two years for Mrs Merkel's infighting-prone centre-right national coalition with the pro-market Free Democratic Party.

But national polls show Mrs Merkel's conservatives as the biggest party, and her coalition about level with the Social Democrats and their allies, the Greens - with neither side in line for a parliamentary majority. They also show support for Mrs Merkel's stance in the debt crisis.

The main German opposition parties, which have voted in favour of Mrs Merkel-backed rescue plans so far but want a greater emphasis on growth, will now be tempted to assert themselves on the issue.

Mrs Merkel needs their support to get the European budget-discipline pact through the German Parliament, where it requires a two-thirds majority.

Mrs Merkel also faces demands to do more for growth from incoming French President Francois Hollande. He talked before ousting Mrs Merkel's ally Nicolas Sarkozy of renegotiating the fiscal compact.

"No one on our side has anything against growth, but the question is what that means for budget policy," Mrs Merkel said. "I would like to recall again that the Greek crisis was not caused by too much saving."