By Stephen Brown
BERLIN (Reuters) - Germany's opposition Social Democrats (SPD) do not believe the time for debt and deficit reduction in Europe is over yet, but see a need to focus more on growth to combat unemployment in southern Europe, a top SPD politician told Reuters.
As Europe debates whether it can stand more of the austerity led by Chancellor Angela Merkel, whom the SPD aims to oust in an election in September, Frank-Walter Steinmeier said he did not think the European Commission was ready to call the dogs off.
The SPD parliamentary leader, asked in an interview on Wednesday about suggestions the European Union should loosen the fiscal reins on the euro zone, said structural reform, reducing debt and "a minimum of growth" were complementary aims.
"I don't think (European Commission President Jose Manuel) Barroso really thinks we should put less emphasis on savings, but he knows that because of the exploding youth unemployment in Spain, Portugal and Italy that we mustn't lose sight of growth."
The SPD is allied to French Socialist President Francois Hollande and sympathises with his struggle to tackle rising unemployment and weak growth while bringing the public deficit down to 3 percent - a target Paris now concedes it will miss.
With polls showing that most German voters back Merkel's insistence on heavily-indebted euro zone states reducing their spending, the SPD must be more cautious in the austerity-versus-growth debate than many of its own supporters would wish.
Opinion polls suggest Merkel will win a third term in September and the SPD's best hope could be another 'grand coalition' under her command, like the 2005-2009 government in which Steinmeier served as foreign minister.
The SPD's candidate for chancellor, Peer Steinbrueck, was finance minister in the same cabinet but says he will not serve under Merkel again.
Steinmeier would be a likely deputy chancellor and minister if that arrangement were repeated but he told Reuters: "A grand coalition belongs to the past, not to the future."
Polls show Merkel has much more credibility on Europe than the SPD, which has cooperated with her government on euro crisis votes. One area where it does dare to differ is on a euro zone debt redemption fund proposed by a panel of government advisors.
These "wise men" envisage a pact where member states with sovereign debt above 60 percent of gross domestic product would pool excess debt in a fund with common liability. By committing to reforms they would secure easier terms for debt payments.
Merkel calls this "counterproductive" and a form of shared debt liability - hard to stomach for German taxpayers, who fear they already pick up too much of the tab for euro zone bailouts.
Steinmeier said it was not an urgent priority if the SPD did form part of the next government. "The debt redemption fund could be an instrument in the medium term but it would not contribute much to growth right now," he said.
Steinmeier, a silver-haired 57-year-old with a diplomatic style that counterbalances the sharp-tongued Steinbrueck, led the failed 2009 election challenge against Merkel. It produced the SPD's worst result in its post-war history, at 23 percent.
The current campaign under Steinbrueck has got off to a bad start and the SPD is back at those historic lows in some polls, which see Merkel's coalition winning a governing majority and her personal approval ratings soaring to around 60 percent.
Steinmeier said popularity was no guarantee of victory and the SPD candidate should keep "speaking his mind" despite his record of gaffes.
Presenting the 150-year-old party as defender of the "little people", he said Germany's biggest challenge would be a shortage of skilled labour rather than unemployment, requiring investment in education which is one of the SPD's main election promises.
"We have two major goals: to bring down state debt and invest much more in education. That is what we need and that is what the SPD stands for," said the former foreign minister.
(Additional reporting by Andreas Rinke, Madeline Chambers and Reuters Television; Editing by Giles Elgood)