German parliament approves expanded bailout fund
By Michael Birnbaum,
The overwhelming approval — by a vote of 523 to 85 — marked a major step in addressing the sovereign debt crisis that has afflicted euro-zone countries, allowing officials to move on to additional steps. The move also helped boost European stocks Thursday, and Wall Street appeared headed for gains at its opening bell.
In winning the approval, Merkel was able to round up 315 votes from lawmakers in her governing coalition, reinforcing her political standing in Germany. She also received substantial support from opposition parties.
The expansion of powers for the bailout fund will go forward if six other euro area countries approve it over the coming weeks. But Merkel may have little room to maneuver in pushing for further measures that would increase Germany’s commitments to helping its troubled fellow euro-users.
Merkel said this week that a July agreement with Greece on a second bailout may have to be renegotiated based on the findings of an inspection team from the International Monetary Fund and other creditors that arrived in Athens on Thursday. Her flexibility may be limited by the parliamentary vote.
“We are in an exceptionally difficult situation, because the financial markets remain extremely uncertain,” German Finance Minister Wolfgang Schaeuble said in parliament ahead of the vote, in a bid to win support for the measures.
Germany became the latest country to approve expanded powers and a larger size for the European bailout fund, which is known as the European Financial Stability Facility. Six countries still need to approve the changes, which were accepted by euro area leaders in July and would bring the lending capacity of the fund up to $600 billion.
European leaders had been concerned that the original fund would not have enough money to cover the costs of extending assistance to a large economy such as Spain’s.
But events have outstripped the slow pace of the approvals. Greece now appears as though it will need far more assistance than leaders had hoped in the summer when the plan was approved. And should a series of large economies need help, the money that they have committed would presumably be imperiled, meaning that the fund would not be enough to assist them anyway.
The inspection team, consisting of delegates from the IMF, the European Central Bank and the European Commission, had abruptly left Greece at the beginning of the month when it seemed to them that the country had fallen far short of targets that were a condition of the 2010 bailout. In recent weeks, Greece has proposed additional measures to raise revenues, including a property tax that will be charged on electricity bills to make it more difficult to evade.
Protests crisscrossed Athens on Thursday, and several ministry buildings were occupied by unhappy civil servants.
Germany, Europe’s powerhouse economy, has been reluctant to commit to helping Greece. The reluctance has been fueled by a perception among German voters that they have made tough sacrifices over the last decade to get their economy in order as Greece borrowed to raise wages beyond what made sense for its economy.
Merkel herself was a reluctant convert to the Greek cause, concentrating for months on preserving her coalition’s power in a series of state elections this year. It racked up defeats that were historic in size. In recent weeks she has become more willing to speak passionately about the need to help Greece, and more articulate about the benefits that Germany, an export economy, has drawn from being able to sell its goods cheaply to the rest of Europe.
But many in her own coalition have become convinced that committing more money to Greece is a hopeless cause and that the country should be left to default on its debts and suffer the consequences. Some in Merkel’s junior coalition partner, the Free Democrats, have even suggested that Greece should leave the euro, a step that Merkel has said could doom the European Union.
Before the vote, Merkel had said that she was confident she would receive a majority from within her own coalition, rather than a simple majority vote of parliament.