BACKGROUND: Minister's remarks rapidly sent German officials into full damage limitation mode

URSULA VON der Leyen picked her moment well.

Hours before a crucial meeting of Germany’s ruling Christian Democrats (CDU) yesterday, as a summer storm rolled through the German capital, the labour minister suggested Germany should follow Finland’s lead on Greece.

Rather than simply hand over further loans to Athens, money many Germans believe they will never see again, Dr von der Leyen suggested Berlin should ask for collateral. Gold, preferably.

As thunder rolled overhead, the suggestion hit home like a political thunderbolt.

One month after euro zone leaders agreed a bailout reform package, and a month before the package goes to vote before national parliaments, a senior German minister appeared to be calling for a renegotiation.

On an aircraft back from Belgrade, a thin-lipped chancellor Angela Merkel reportedly told advisers: “I’m going to have to have a word with Ursula.”

Even before she landed, German officials were in full damage limitation mode, working the phones and issuing statements denying the minister spoke for the government.

“This is sub-optimal,” groaned a senior government source. “No one is amused.”

The official confirmed that the remarks were not agreed with the government. In the chancellery, speculation was rife that the labour minister is on a solo run, perhaps even to challenge Dr Merkel.

Dr von der Leyen, a 52 year-old mother of seven, is one of Dr Merkel’s most ambitious ministers and one of two names regularly mentioned as a possible successor.

“This has to be seen clearly and entirely in a domestic political context,” said a leading CDU official who asked not to be named. “We’re hoping it’s already over.”

But at yesterday’s Bundestag meeting, one backbencher after another used their chance to remind Dr Merkel that, increasingly, they share their constituents’ unhappiness at the ballooning bailout bill.

“We need to take the concerns of voters over this more seriously,” said Wolfgang Bosbach, a senior party figure, who has vowed to vote against bailout reforms next month.

Dr Merkel reassured party rank and file, reiterating her promise that next month’s vote on revised bailout terms would not open the door to eurobonds, shared euro zone debt. She also reminded backbenchers that Finland’s bilateral collateral deal with Greece was not a done deal.

“That is very much dependent on the approval of other euro zone countries,” she said, according to someone who attended the meeting.

The German leader mentioned her labour minister’s remarks only in passing, saying “that isn’t the way to get things done”.

European Commission officials in Brussels are less optimistic the collateral row is over.

Senior figures predict further political rows and delays in parliamentary adoption of the July 21st summit conclusions – with unpredictable consequences for the euro zone.

Brussels officials reiterated the importance of sticking to the agreement and agreed timetable without fresh demands above what was already agreed.

The warning was clear: opening a political can of worms could spook markets and throw everything into question, including Ireland’s own future loan terms.

Did Dr von der Leyen’s proposal apply to Ireland? Her spokesman didn’t return requests for clarification.

“We saw this coming; it shouldn’t surprise anyone that we are still discussing collateral,” said a senior European Commission source.

Point 9 of the July 21st summit conclusions, inserted at Finnish insistence, makes provision for bilateral collateral deals to cover the risk arising from EFSF guarantees “where appropriate”.

“Who decides now what is ‘appropriate’?” the source asked. “We were never in favour of a vague agreement like this because it creates asymmetric treatment among states.”

Despite calls from politicians in Austria, Slovakia, Slovenia and now Germany for bailout loan collateral, commission officials said yesterday that the Finnish-Greek deal was the only deal on the table to date.

Were yesterday’s remarks a summer storm in a teacup, a strategic show of independence by an ambitious minister – or more?

That depends on whether Dr Merkel and her officials can cut dead the collateral discussion in Berlin. That will be difficult if the proposal finds favour among CDU backbenchers and the tabloid press.

The German leader knows that anything less than a full show of parliamentary support in Berlin next month could have serious consequences for her political future, and that of the euro.