Finance Minister Resigns in Germany

Leftist Finance Minister Oskar Lafontaine resigned Thursday after a bitter clash with Chancellor Gerhard Schroeder, freeing the German leader to cater to the political middle he had courted in last fall’s election.

However, the conflicts within Schroeder’s 4 1/2-month-old government are probably far from over.

Lafontaine’s departure leaves a leadership of center-left Social Democrats and environmentalist Greens deeply divided over how to curb 11.6% unemployment, ease industry’s strangling tax burden and make the German economy more competitive in a united Europe.

“The stability of the government’s work remains beyond question,” a stone-faced Schroeder told a late-night news conference, thanking Lafontaine for his service and saying he respected his decision to quit politics. Lafontaine also resigned as head of the Social Democratic Party.

Lafontaine had repeatedly irritated Schroeder by pushing for bigger government and traditional tax-and-spend socialism, straying far from the party’s campaign pledge to work for the “new middle” like President Clinton and British Prime Minister Tony Blair.

The embarrassing wrangling came to a head during a Cabinet meeting Wednesday, when Schroeder dressed down his finance minister for tax proposals that could chase business out of the country and weaken the new common European currency, the euro.

Long regarded by moderates as a political loose cannon, Lafontaine was blamed for a recent misfire in which he sent a renegade missive to state party factions authorizing them to align with former Communists of eastern Germany in hopes of winning power in some of the six states holding elections later this year.

Berlin newspapers quoted unidentified Cabinet ministers as saying Schroeder was so infuriated that he threatened to tender his own resignation.

Lafontaine was in seclusion at his Saarbruecken home on the French border Thursday when the surprise announcements were made by the party.

Some Social Democrats said Lafontaine will also give up his parliamentary seat, although there was no hint of such a move in his written resignations.

Having spent his entire career in the public eye, including an unsuccessful run against Chancellor Helmut Kohl in 1990, the 55-year-old Lafontaine seemed an unlikely candidate for retirement. The ambitious former Saarland governor could seek to influence the party’s powerful left wing in parliament, or he could press Schroeder to name him to a European Union commissioner’s post to be filled by a German later this year.

Since taking office in October, Schroeder’s coalition has been beset by one damaging internal squabble after another, leaving the Greens free to push through controversial plans for shutting down nuclear power stations and easing citizenship rules.

Social Democratic leaders called an emergency meeting for today to consider a replacement as party leader. For the post of finance minister, speculation centered on Hans Eichel, the governor of Hesse, who is due to leave office next month after the party’s defeat in Feb. 7 state elections.

Reane Oppl in The Times’ Bonn Bureau contributed to this report.

* EURO CLIMBS: Euro rises against the dollar as traders cheer German news. C4