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Germany’s SPD, Chancellor Angela Merkel’s centre-left opponents, has won a narrow victory in elections in the state of Lower Saxony.

The Social Democrats and the Greens won a single-seat majority in the state legislature, a region of 8 million people in north-western Germany.

The election is seen as a bellwether for national elections in September.

The Lower Saxony defeat has set alarm bells ringing for the chancellor.

Angela Merkel’s CDU coalition has lost a number of state elections as she seeks a third term as Germany’s chancellor.

Sunday night’s knife-edge finish saw the SPD and Greens winning a combined 46.3% of the vote to the centre right’s 45.9%.

Germany’s SPD, Chancellor Angela Merkel's centre-left opponents, has won a narrow victory in elections in the state of Lower Saxony

Germany’s SPD, Chancellor Angela Merkel’s centre-left opponents, has won a narrow victory in elections in the state of Lower Saxony

David McAllister, the incumbent leader of Lower Saxony’s government and close ally of Chancellor Merkel, had been hoping for re-election.

He was born in Berlin to a German mother and a Scottish father and is seen as a possible successor to Chancellor Merkel as CDU leader.

The Social Democrats (SPD) enjoyed a comfortable lead over the incumbents in the run-up to the poll, but it evaporated as polling day approached.

The SPD leader in Lower Saxony, Stephan Weil, said before the result that a victory in the state polls as a sign that his party will be taken seriously in September’s national elections.

Since Angela Merkel’s re-election as chancellor in 2009, the CDU has suffered setbacks in recent state elections, and have lost power to the SPD and Greens in four other states.

There was also concern that the CDU’s coalition partners, the Free Democrats, would not win enough votes to maintain the coalition.

They require 5% of the vote to gain seats in the state legislature – exit polls suggested they had 10%.

Angela Merkel appeared several times on the campaign trail with David McAllister, who has played heavily on his Scottish roots.

Known as “Mac”, he used bagpipes in his election broadcasts. He speaks English with a broad Scottish accent.

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German government has criticized leading conservative politician Alexander Dobrindt for suggesting that Greece will have to leave the eurozone.

Foreign Minister Guido Westerwelle said “bullying” of Greece must stop.

And in a TV interview Chancellor Angela Merkel said: “Everyone should weigh their words very carefully.”

Earlier, Christian Social Union leader Alexander Dobrindt, an ally of Angela Merkel, said he expected Greece to leave the eurozone in 2013.

He said he saw “no way round” a Greek exit. He also called the European Central Bank (ECB) chief Mario Draghi “Europe’s currency forger”.

His party, a junior coalition partner of Angela Merkel’s Christian Democrats (CDU), is preparing for an election in Bavaria and Germany’s general elections next year.

German government has criticized leading conservative politician Alexander Dobrindt for suggesting that Greece will have to leave the eurozone

German government has criticized leading conservative politician Alexander Dobrindt for suggesting that Greece will have to leave the eurozone

Last week Angela Merkel reiterated that she wanted Greece to stay in the eurozone. And on Sunday she told German ARD television that “we are in a very decisive phase in combating the euro debt crisis”.

Greece is under pressure to speed up far-reaching reforms, including privatization and civil service job cuts, in order to continue receiving installments of its 130 billion-euro ($163 billion) international bailout.

It is the second massive bailout agreed for Greece since the 2008 debt crisis shook the global economy and German politicians have made it clear they will not stomach a third.

Guido Westerwelle warned that remarks like Alexander Dobrindt’s could harm Germany’s reputation as the eurozone tackles the debt crisis.

Comments by the head of Germany’s Bundesbank, Jens Weidmann, also signaled divisions at the top over the ECB’s handling of the crisis.

In early August Mario Draghi announced plans for the ECB to buy the bonds of countries like Italy and Spain, whose borrowing costs have reached levels widely regarded as unsustainable.

He is expected to give details after a 6 September meeting of the ECB’s governing council.

But Jens Weidmann, one of 17 eurozone central bank chiefs involved in ECB policy, said the plans risked making central bank financing “addictive like a drug” for struggling eurozone governments.

He warned that it was “close to state financing via the printing press” and could be a violation of EU rules preventing government-to-government subsidies.

Traditionally the ECB has been reluctant to undertake large-scale bond-buying because it is seen as inflationary, and the ECB’s priority is to keep inflation under control.

But during the eurozone crisis the ECB has been buying up sovereign debt to help ease the market pressure on struggling, debt-laden eurozone countries.

At the weekend the German and French governments indicated that Greece’s plea for a two-year “breathing space” in meeting its bailout obligations was unacceptable.

Eurozone leaders are waiting for a crucial report on Greece’s finances, due in late September. It will be delivered by the troika supervising Greece’s fulfillment of the bailout conditions – the ECB, International Monetary Fund (IMF) and European Commission.

Greece’s continued access to the bailout lifeline depends on a favorable report from the troika.

Athens is trying to finalize a package of 11.5 billion euros of spending cuts over the next two years.

 

French President Francois Hollande has urged Greece to prove it can pass reforms demanded by international creditors, after talks with PM Antonis Samaras.

Greek PM Antonis Samaras has been appealing for more time to introduce the reforms.

But Francois Hollande said no further decision could be taken until European ministers consider a major report on Greece’s finances, due in September.

Donors including the EU insist Greece has to make major spending cuts.

These are needed if Greece is to secure the next tranche of its bailout.

French President Francois Hollande has urged Greece to prove it can pass reforms demanded by international creditors, after talks with PM Antonis Samaras

French President Francois Hollande has urged Greece to prove it can pass reforms demanded by international creditors, after talks with PM Antonis Samaras

The Greek government is under pressure to win concessions from Europe to placate the tired nation and lessen the likelihood of a destabilizing period of social unrest.

Antonis Samaras is seeking an extension of up to two years for the necessary reforms, in order to provide Greece with the growth needed to improve its public finances.

In talks with German Chancellor Angela Merkel earlier this week, he was told that the decision would depend on a report from the so-called troika – the International Monetary Fund (IMF), the European Central Bank (ECB) and the European Commission.

Francois Hollande also said Europe needed to consider the report before it could make any further decisions on Greece.

He said decisions on whether to grant Greece more time should be taken when European finance ministers meet in early October.

“We’ve been facing this question for two and a half years, there’s no time to lose, there are commitments to reaffirm on both sides, decisions to take, and the sooner the better,” he said.

Greece’s continued access to the bailout packages depends on a favorable report from the troika.

Athens is trying to finalize a package of 11.5 billion euros ($14.4 billion) of spending cuts over the next two years.

It is also being asked to put in place economic and structural reforms, including changes to the labor market and a renewed privatization drive.

The measures are needed to qualify for the next 33.5 billion-euro installment of its second 130bn-euro bailout.

Greece needs the funds to make repayments on its debt burden. A default could result in the country leaving the euro.

 

The polls have opened this morning in Greece for crucial elections which could determine the country’s future in the eurozone.

The main contenders, the right-wing New Democracy and left-wing Syriza, are at odds over whether broadly to stick with the tough EU bailout deal, or reject it and boost social spending.

Opinion polls are banned for two weeks before voting but unofficial polls say the result is too close to call.

EU leaders say if Greece rejects the bailout, it may have to leave the euro.

The poll, the second in six weeks, was called after a vote on 6 May proved inconclusive.

Sunday’s vote is being watched around the world, amid fears that a Greek exit from the euro could spread contagion to other eurozone members and send turmoil throughout the global economy.

Tough austerity measures were attached to the two international bailouts awarded to Greece, an initial package worth 110 billion Euros ($138 billion) in 2010, then a follow-up last year worth 130 billion Euros.

Many Greeks are unhappy with the conditions attached to deals which have been keeping Greece from bankruptcy and all but one of the parties standing for election have promised some degree of renegotiation of the terms.

The polls have opened this morning in Greece for crucial elections which could determine the country's future in the eurozone

The polls have opened this morning in Greece for crucial elections which could determine the country's future in the eurozone

In remarks quoted by the Reuters news agency a few hours before polls opened, the head of the Organization for Economic Co-operation and Development Angel Gurria suggested that the next Greek government should be given a chance to revisit the bailout conditions.

“If that is the condition presented for Greece to stay [in the eurozone] and then move on, I would say it is probably something that should be attempted,” he was quoted as saying.

But Germany, which has the eurozone’s most powerful economy, insists Greece, like other member states which have received international bailouts, must abide by the austerity conditions.

On the eve of the vote, Chancellor Angela Merkel said: “It is extremely important that tomorrow’s Greek elections lead to a result in which those who form the government say, ‘Yes, we want to keep to our commitments.'”

Like Angel Gurria, the German chancellor and several other European leaders will be attending the G20 summit in the Mexican resort of Los Cabos on Monday, which is set to be dominated by the eurozone crisis and the aftermath of the election.

The head of New Democracy, Antonis Samaras, told supporters on Friday that he would lead the country out of the financial crisis, while staying in the eurozone.

He broadly accepts Greece’s international bailout, but says he will renegotiate the terms of the agreement to seek a better deal for Greeks.

“We will exit the crisis; we will not exit the euro. We will not let anyone take us out of Europe,” Antonis Samaras said.

The youthful head of Syriza, Alexis Tsipras, rejects the bailout, but wants Greece to stay in the eurozone, saying a bailout is possible without the kind of drastic cuts demanded of Greece.

“Brussels expect us, we are coming on Monday to negotiate over people’s rights, to cancel the bailout,” he told a final rally on Thursday.

Greeks were celebrating hours before the polls opened, after their national football team qualified for the quarter finals of Euro 2012 with a surprise 1-0 win over Russia.

“We are proud that we gave the people back home some joy and a break from their problems – even for a short while,” striker Georgios Samaras said.

The Kathimerini website noted that Greeks had few reasons to feel national pride at the moment, but sport had provided them with plenty of it. The victory could lead to a quarter-final tie against Germany.

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G8 leaders of the world’s most powerful economies say they want debt-stricken Greece to remain in the eurozone.

In their summit communique, G8 leaders also committed themselves to promoting growth alongside fiscal responsibility.

However, the leaders acknowledged “the right measures are not the same for each of us”.

Greece’s possible exit from the eurozone was high on the agenda, following inconclusive elections there.

The leaders of France, Germany, the US, the UK, Italy, Japan, Canada and Russia have been meeting at Camp David in the US state of Maryland.

“We agree on the importance of a strong and cohesive eurozone for global stability and recovery, and we affirm our interest in Greece remaining in the eurozone while respecting its commitments,” the statement said.

The global economic recovery was showing signs of progress, they said, but “significant headwinds persist”.

G8 leaders are divided on whether to continue with austerity or back stimulus measures instead.

German Chancellor Angela Merkel favors austerity, while newly elected French President Francois Hollande wants to pursue policies for greater growth, as does President Barack Obama.

G8 leaders of the world's most powerful economies say they want debt-stricken Greece to remain in the eurozone

G8 leaders of the world's most powerful economies say they want debt-stricken Greece to remain in the eurozone

There are caveats but the first line of the communique – about promoting growth and jobs – means Presidents Obama and Hollande have won the day.

However, it is not clear that Angela Merkel has got their message and is prepared to act on it, our correspondent adds.

US officials said Angela Merkel would hold a one-on-one meeting with Barack Obama later on Saturday.

Italian Prime Minister Mario Monti said there would be another key meeting in June in Rome, where he would host Francois Hollande and Angela Merkel.

Earlier, UK Prime Minister David Cameron called for deficit reduction.

“There is a growing sense of urgency that action needs to be taken, contingency plans need to be put in place and the strengthening of banks, governments, firewalls and all of those things need to take place very fast,” he told reporters at Camp David.

The likelihood of Greece leaving the euro is growing.

The office of the Greek interim prime minister said on Friday that Angela Merkel had suggested the country hold a referendum on euro membership on election day, but the German chancellor’s cabinet dismissed this as “false”.

Greek voters will again go to the polls on 17 June after earlier elections failed to produce a viable coalition to run the country.

A caretaker government was sworn in this week after elections.

Investors fear any refusal by Athens to impose deep spending cuts agreed under a bailout deal could result in the country quitting the bloc of 17 countries that use the euro.

Two opinion polls published on Saturday showed the anti-bailout left-wing Syriza bloc neck and neck with centre-right New Democracy, both on about 25%.

Larger countries such as Spain or Italy struggling to ease their debt loads might then become vulnerable, potentially triggering wider eurozone upheaval and even a global financial crisis to rival the one of 2008.

The G8 summit has now moved on to other issues, including food security, energy and climate, partnerships in North Africa and the Middle East and the war in Afghanistan.

After the G8 summit ends on Saturday evening, most of the leaders will decamp to Chicago to join a larger group of international officials for a NATO summit on Sunday and Monday, at which Afghanistan is expected to be the main item on the agenda.

Three men arrested in Chicago on suspicion of planning to throw petrol bombs at the NATO summit have been charged with conspiracy to commit terrorism and possession of an explosive or incendiary device.

Prosecutor Anita Alvarez said the campaign headquarters of President Barack Obama and the home of mayor Rahm Emanuel were among the targets.

 

The German economy returns to growth in the first quarter of 2012 with a better-than-expected 0.5% rise in GDP, official figures have shown.

In Q4 2011, the German economy contracted by 0.2%, its first dip since 2009.

Meanwhile, the French economy recorded zero growth in the first quarter, after growth of 0.1% at the end of 2011.

Figures released later on Tuesday are expected to show that the eurozone as a whole has returned to recession.

Data also showed that the Italian economy fell deeper into recession after contracting by 0.8% in the first quarter, slightly worse than analysts had expected. The economy shrank by 0.7% in the previous quarter.

Compared with the same a quarter a year earlier, the German economy grew by 1.7%.

The German economy returns to growth in the first quarter of 2012 with a better-than-expected 0.5 percent rise in GDP

The German economy returns to growth in the first quarter of 2012 with a better-than-expected 0.5 percent rise in GDP

The German statistics agency Destatis said growth was due to a rise in exports and higher domestic consumption.

The return to growth means Germany has avoided a so-called double-dip recession, confounding the predictions of a number of commentators.

In contrast, the French growth figures failed to outperform analysts’ expectations, and the growth figure for the final quarter of last year was revised down to 0.1% from 0.2%.

“There was no good surprise,” said Philippe Waechter at Natixis Asset Management.

“There was weak consumption [and] no investment.”

The French GDP figures come on the day of the inauguration of the new French President Francois Hollande, who has vowed to boost economic growth.

In the run up to the presidential election, in which he ousted Nicolas Sarkozy, he campaigned hard for measures focusing on stimulating the economy alongside the austerity measures that have been adopted across the eurozone.

He will visit German Chancellor Angela Merkel later on Tuesday to make the case for growth.

Francois Hollande believes that growth rather than austerity is the best way for governments to reduce their debts, a view that is being discussed more widely as the eurozone economy continues to struggle and increasing numbers of Europeans voice their anger at austerity.

The eurozone economy contracted by 0.3% in the final quarter of last year, and many analysts believe growth figures published later this morning will show further contraction in the first quarter of this year. If they are correct, the eurozone will be back in recession.