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German Chancellor Angela Merkel delivers a news conference in Berlin, Germany, April 12, 2018. REUTERS/Fabrizio Bensch

(reuters_tickers)

By Andreas Rinke and Michel Rose

BERLIN/PARIS (Reuters) - Chancellor Angela Merkel's conservatives are restricting her room for manoeuvre on euro zone reform, documents seen by Reuters show, which could further frustrate French President Emmanuel Macron, who visits Berlin later this week.

A draft resolution for German lawmakers drawn up by leading members of Merkel's conservative bloc rejects plans floated by the executive European Commission to make use of a specific EU legal provision to create a European Monetary Fund (EMF).

Instead, the conservatives say that setting up an EMF under European law would require treaty change "in consultation with national parliaments" -- a tricky feat that would take time. They also want an independent EMF, free of European control.

By floating the resolution ahead of Macron's working meeting with Merkel on Thursday, the conservative lawmakers are flexing their muscles, seeking to safeguard the Bundestag's ability to veto euro zone aid packages and restricting reform of the bloc.

Their go-slow approach, born of angst about German taxpayers' money being used to fund profligate states, limits Merkel's capacity to reform -- to Macron's growing frustration.

"I know that Macron is pushing Merkel and she is not moving in the way he thinks she should be moving," said a person close to the French president, adding that he may have to adopt a more confrontational tone with Germany.

"He will have to," added the person, who spoke on condition of anonymity. "And his basic point will have to be: I'm spending a lot of capital in France to modernise the country. I promised that I would do this and I'm delivering. This is a credit that has to be paid."

Macron was elected last May on a promise to overhaul the European Union. He has called for the euro zone to have its own budget and finance minister, and for the currency bloc's rescue fund, the ESM, to be turned into a mechanism -- like an EMF -- for helping member states pre-empt threats of financial instability.

Euro zone leaders are working on reforms with a view to protecting the 19 countries using the euro better from financial crises and help rally the EU around the bloc at a time of strong anti-EU sentiment and Britain's decision to leave the EU.

But Merkel, whose political capital is depleted after she lost support in last September's national election, faces fierce resistance from her conservatives to any reforms that would see German taxpayers assume liability for other countries' debts.

"STRICT CONDITIONS"

Finance Minister Olaf Scholz, a member of the Social Democrats, Merkel's coalition partner, said in a weekend newspaper interview that EU reforms proposed by Macron should be addressed before European elections next year. But he said some of the proposals were not feasible.

In a proposal for discussion at a meeting of the conservative parliamentary bloc on Tuesday, the group's deputy leader, Katja Leikert, stressed that individual euro zone member states must remain liable for their own risks.

"Our guiding principle is that the assumption of risks by a member state must be accompanied by the liability of that state," read the proposal, seen by Reuters.

"Financial aid will only be granted with strict conditions," the proposal added, insisting that German lawmakers must retain the right to decide on granting financial aid to other euro zone member states.

It said Germany and France should not act as an exclusive alliance in the EU: "We must not overstretch the European Union, because disappointment among citizens over Europe would weaken the successes and acceptance of the European idea."

The robust stance taken by German lawmakers on the euro zone issue threatens to complicate the reform process this year, which is seen as a critical but narrow window, with the European Parliament holding elections and Britain's exit from the EU reaching its deadline in 2019.

A French presidential adviser said some European governments and officials believed that with Macron and Merkel, both pro-Europeans, in office "we're back to cruising speed".

"But cruising speed is not enough," the advisor said, adding that Macron would use a speech in Strasbourg on Tuesday to jolt partners into action.

"It won't be a speech to make the same proposals again or say the same things, it will be a speech about this European moment and to show it's urgent to act," the advisor said.

(Additional reporting by Noah Barkin in Berlin and Yves Clarisse in Paris; Writing by Paul Carrel; Editing by Catherine Evans)

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Reuters