Guttenberg's fall leaves Merkel needing euro win

Annika Breidthardt and Paul Taylor, Reuters, 02.03.2011

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The spectacular fall of her most popular cabinet minister leaves German Chancellor Angela Merkel badly in need of a win on the European stage but in a weaker position to help her euro zone partners.
  
Karl-Theodor zu Guttenberg, 39, stunned Merkel and German voters by resigning as defence minister on Tuesday over allegations he copied parts of his PhD thesis. Stripped of his doctorate, the dashing Bavarian aristocrat, seen until recently as a future chancellor, also stepped down as a member of parliament, embarrassing Merkel who had defended him until the end.

The latest political setback may make it even less likely Germany, Europe's biggest economy, will agree to a domestically unpopular major strengthening of the euro zone financial rescue fund at a summit later this month, as markets are hoping. If the outcome falls short of investors' expectations, it could trigger another run on euro zone peripheral countries' sovereign debt, traders say.

Guttenberg's fall was the second loss of a key Merkel ally in less than a month, after Bundesbank chief Axel Weber withdrew from the contest to head the European Central Bank, robbing her of a trump card in negotiations on reforming the euro zone. "Things will be tougher for Merkel now than if Weber and Guttenberg had stayed," said European political analyst Janis Emmanouilidis, who is both German and Greek. "On every issue where the impression is being created that Germans are going to have to pay in return for concessions by European partners, it will be more difficult now." [...]

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