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Schröder exerts control
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March 12, 1999: 8:26 a.m. ET
'Moderate' Eichel set to replace Lafontaine as finance minister
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LONDON (CNNfn) - German chancellor Gerhard Schröder has moved swiftly to stamp his authority on the ruling SDP party and is set to nominate a relatively unknown regional leader to replace Oskar Lafontaine as finance minister, according to party sources.
Schröder will also take over the party chairmanship following Lafontaine's shock resignation Thursday after a cabinet clash with the president over economic policy.
Schröder will meet today with Hans Eichel to offer the former premier of Hesse the finance post. Economics minister Werner Müller is expected to take over the finance brief on an interim basis until Eichel leaves his Hesse office next month.
While the euro and Frankfurt shares have soared following Lafontaine's departure, his legacy may dampen the initial market fervor. Peter Struck, the SPD's parliamentary leader, said Friday that the government will not redraft the package of tax reforms pushed through by Lafontaine.
Some reports had suggested Schröder would seek to scrap the 20 billion mark program after protests from industry leaders. The tax plan has been passed by the lower house of parliament and reaches the upper house on March 19. However, the SDP lacks a majority there and this may give Schröder a politically-expedient opportunity to let the plan wither.
Eichel lost the premiership of the wealthy Hesse region, which includes Frankfurt, in elections last month. He has no national or international political experience. His appointment as finance minister would confirm the ascendancy of Schröder's attempt to push through a more moderate set of policies than the left-leaning Lafontaine.
Analysts were unanimous that the resignation would give the European Central Bank breathing room to cut interest rates. ECB president Wim Duisenberg had been determined not to bow to Lafontaine's intense lobbying for a cut as he seeks to establish the bank's credibility as an independent force. Duisenberg played down the chances of a cut at the next ECB meeting on March 22.
The weakening picture of economic data in Europe over the last month has convinced many observers of the need for a quarter-point cut, despite the sharp fall in the euro from its opening level of $1.17 to $1.08. Some analysts had been predicting it would fall through the $1 by the end of the year, though Lafontaine's departure saw it surge more than two cents Thursday. In European trading Friday the single currency was at $1.0935.
Lafontaine's calls for international currency bands are also likely to disappear with him and pave the way for a period of improved unity within the European Union's council of finance ministers, which is also due to meet next week to discuss EU budget reform.
Expressions of regret over the change at Germany's helm have been conspicuously absent, with French finance minister Dominique Strauss-Kahn among the first to welcome Eichel's nomination.
-- from staff and wire reports
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