Germany poised to vote in favour of European financial stability facility

Resounding ‘yes’ vote will help accelerate plans to establish a permanent European monetary fund The German parliament is expected to approve enhanced powers for the eurozone’s bailout fund on Thursday as plans to set up a fully fledged European monetary fund (EMF) gather pace. Senior European officials believe Berlin will revisit proposals for an EMF – first raised by German finance minister Wolfgang Schäuble in spring last year and revived by French president Nicolas Sarkozy in July this year – once the Bundestag vote is secured. The only question is the scale of the majority Chancellor Angela Merkel will win for expanding the financial guarantees available to temporary precursor of an EMF, the European financial stability facility (EFSF), with markets hoping for a reassuringly large margin of victory. On Wednesday the Finnish parliament approved the enhanced EFSF, the ninth out of the 17 eurozone states to do so. Separately, the European parliament voted overwhelmingly in favour of the so-called “six-pack” series of laws to impose tougher budgetary discipline on the eurozone’s 17 members and help to prevent the flare-up of future sovereign debt crises. It also emerged that the “troika” of experts from the EU, International Monetary Fund and European Central Bank will be in Athens on Thursday to test whether Greece is complying with the terms of its rescue through savage budget cuts and can therefore be awarded the sixth and latest tranche of its initial €110bn (£95bn) bailout, worth €8bn. Merkel told Greek television that the second rescue package, worth €109bn, might have to be renegotiated amid suggestions this would entail bondholders accepting “haircuts” – write-offs on the debts they are owed – of up to 50% rather than the 21% agreed in July. Sources have indicated that Greece has enough cash to meet its bills, including the salaries of public servants, until the end of next month but that eurozone finance ministers will approve the release of the €8bn as early as 15 October, when they will hold an unscheduled meeting on the issue. Slovakia will not be voting on the enhanced EFSF until 25 October. None the less, this flurry of activity is viewed within the European commission as evidence that the eurozone, and the EU as a whole, can respond to demands – above all from the US – for greater urgency in tackling the debt crisis and thereby restore investor confidence. Some very senior figures even welcome the outspoken and unprecedented intervention last weekend by Tim Geithner, US treasury secretary, in favour of increasing the EFSF’s financial firepower from €440bn to closer to €2 trillion as providing a salutary spur to action. Schäuble has denounced his American counterpart in the run-up to Thursday’s key Bundestag vote. But he and his colleagues are said to be keen to relaunch the notion of an EMF armed with powers to analyse, prevent and help solve debt crises. On Wednesday, José Manuel Barroso, the commission’s president, gave his backing to bring in the eurozone’s permanent crisis resolution facility – the European Stability Mechanism (ESM) – earlier than planned. The ESM is due to replace the EFSF in July 2013. He told MEPs in his annual state of the union address that the EFSF should be made both stronger and more flexible. When ratified by all 17 eurozone parliaments, it would be able to deploy precautionary intervention measures, initiate the recapitalisation of banks, and intervene in secondary markets (via bond purchases) to help avoid contagion. “Once the EFSF is ratified, we should make the most efficient use of its financial envelope. The commission is working on options to this end,” he said. “Moreover, we should do everything possible to accelerate the entry into force of the ESM.” The ESM could, senior sources indicated, be set up a year early in mid-2012 and serve as a transition to the EMF. That is the wish of Guy Verhofstadt, the ex-Belgian premier and pro-federalist leader of the liberal (ALDE) group of MEPs. He told Barroso in a letter that an EMF should be swiftly set up with sufficient funds and designed to operate under majority voting to speed decision-making. Barroso admitted that the EU was facing “the biggest challenge in all its history” and that the sovereign debt crisis was really a “crisis of political confidence” and a “baptism of fire for our whole generation”. He insisted that Greece would remain a member of the eurozone but that the answer to the crisis was to deepen economic co-ordination and integration. He reiterated his call for the creation of eurobonds and indicated that this might require changes to the EU treaties – a red rag to a bull in the UK. The commission president went further by hinting at further treaty changes to limit the use of unanimous voting, which allowed the slowest EU member states to dictate the speed of progress of all the others. “This is not credible also from the markets’ point of view; this is why we need to solve this problem of decision-making,” he said. European debt crisis Germany Euro Greece European Union Economics Europe David Gow guardian.co.uk

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