Germany’s fractious ruling coalition has rejected calls for an early national election that came after the Free Democrats, junior partner to the Christian Democrats, saw their popularity slump in the closely watched race for Berlin’s city parliament.

The humiliating result for the FDP was a new blow for Angela Merkel’s coalition government just as it faces a critical parliamentary vote on measures to stabilise the eurozone. In spite of running a populist campaign seeking to exploit voters’ resentment at Germany’s bail-out of Greece, the Free Democrats scraped only 1.8 per cent, failing to win any seats in the city parliament and looking in danger of facing nationwide electoral extinction.

Chancellor Merkel said she did “not expect governing to become any more difficult” even as the Free Democrats’ crisis deepened. Some Christian Democrats privately said this was because the Free Democrats disastrous result should make them see the dangers of eurosceptic rhetoric.

However, Merkel allies also conceded they were worried an ever-weaker FDP could become a liability as parliament prepares to vote on three major euro-rescue bills over the next few months.

In Sunday’s Berlin state election, the FDP slid from 7.6 per cent in 2006, the fifth time in this year’s seven state elections that the party failed to clear the 5 per cent hurdle to enter a parliament in Germany.

Philipp Rösler, FDP chairman and Ms Merkel’s economy minister, admitted the result was a blow, but stressed the party had been elected to govern responsibly at national level until autumn 2013. “That is what we will do for the next two years,” he said.

He again rejected criticism – from opposition politicians and even some Free Democrat colleagues – that he had tried to steer the party towards a populist, anti-euro stance, in part by last week speculating about the possible need for the “controlled insolvency” of Greece.

The Social Democratic Party won the Berlin election, with its popular mayor Klaus Wowereit now able to choose to rule with the Greens – bringing ideological compatibility but a slender majority – or the more numerous but conservative Christian Democrats.

“We need early elections,” SPD leader Sigmar Gabriel said, although he also said the FDP’s demise in Berlin “showed that you can’t win elections in Germany with some superficial anti-euro campaign.”

The coalition parties were keen to demonstrate business as usual at national level on Monday, circulating a proposal to boost parliament oversight of future eurozone bail-outs.

Christian Democrats and Free Democrats circulated proposals for parliamentary oversight of the European financial stability facility, the EU’s €440bn bail-out fund. The Bundestag is due to vote on expanded powers for the fund, and parliamentary scrutiny procedures, on September 29.

To allow parliament its say even over emergency measures agreed by eurozone governments without hampering the EFSF, Christian Democrats and Free Democrats want a “standby committee” of up to nine lawmakers from all parties to sign off on urgent measures – by phone if need be.

While the full chamber would get to vote on new rescue packages, the budget committee would vote on the use of new emergency tools such as bank-recapitalisations or bond-buying on secondary markets.

Klaus Regling, chief executive of the EFSF, told a parliamentary committee that this was “a conceivable model.”

“When we’re talking about secondary-market bond-buying, when we want it to be successful, we won’t have much time at all,” he said. Mr Regling said all parliaments in the 17-member eurozone were currently discussing parliamentary oversight of a beefed-up EFSF.

He said he hoped all lawmakers would take into account the different speeds at which different instruments might be needed.

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