Merkel enjoys triumph in bailout vote, but how long will it last?

Bundestag vote approves increase of Germany’s guarantees from €123bn to €211bn Victory for Angela Merkel in the crunch parliamentary vote on increasing the powers of the euro bailout mechanism could prove shortlived as Germany comes under increasing pressure from EU officials to deliver fresh proposals to give the rescue fund a supercharged boost. German public opinion is firmly against any “leveraging” of the European Financial Stability Facility and both Wolfgang Schäuble, the German finance minister, and Philipp Rösler, the economics minister, set their stalls out against any such extension as the Bundestag voted 523 to 85 to increase the EFSF’s available funds to €440bn (£382bn). The vote approves the increase of Germany’s guarantees from €123bn to €211bn. Schäuble said any further increase, mooted after last weekend’s IMF meeting in Washington, was “out of the question”. Behind the scenes, however, officials are discussing at least three options for leveraging the fund to help head off the threat of potentially catastrophic defaults across the eurozone and these talks are expected to accelerate now that Germany has approved the 21 July decision to give the EFSF enhanced powers. “The only player that matters is Germany – despite what Sarkozy says. We can now get on with these discussions since Berlin knows they must take place no matter what ministers say in public,” one senior source said. Analysts cautioned, however, that it would be unrealistic to expect a fully fledged scheme to be in place in time for the G20 summit in Cannes in early November, let alone the next EU summit in mid-October. There remains deep anxiety that the greater urgency to resolve the eurozone’s sovereign debt crisis and ward off a deep recession could yet be undermined by Slovakia, the last of the 17 countries to vote on the changes to the EFSF. Iveta Radicˇová, the country’s premier, is said to need substantial opposition support to secure a majority for enhancing the EFSF. She wants a mandate before the 17-18 October EU summit but has warned Brussels a vote may not be possible until a week later. The immediate threat of a Greek default is thought to be over, with Athens expected to get the sixth instalment of the first bailout package or €8bn by the end of October. But private bondholders – mostly large European banks – are already spooked by talk within Berlin about a 40 “haircut” in the event of a default rather than the voluntary 21% agreed in July. The discussions about “leveraging” are so sensitive, especially given market volatility, that none of the ideas has so far been formally been circulated. “We’re talking about non-papers so far,” an official said. But the three options are said to focus on turning the EFSF either into a bank, or an insurance scheme, or giving it the powers to borrow funds from the European Central Bank or private investors to buy eurozone government bonds. The options are said to be so technically fraught that even senior officials are struggling to master the ideas, while they are also certain to unleash political conflicts. Schäuble remains enraged by the suggestion of Tim Geithner, the US treasury secretary, that the EFSF be “leveraged” up to €2tn. But one Brussels official, referring to Geithner’s guest appearance at an informal Ecofin meeting this month in Poland, said: “Pity Geithner can’t come to all the meetings of eurozone finance ministers.” The Bundestag vote gave an immediate boost to chancellor Merkel, asserting her authority by winning without needing to rely on opposition support. A majority of her coalition MPs – 315, or four more than her nominal majority – backed the EFSF boost with the number of suspected dissidents falling to just 13 after days of arm-twisting. Eighty-five voted against the motion, including 10 from Merkel’s own Christian Democratic bloc and three from the Free Democratic party (FDP), the chancellor’s coalition partners. Most of the “no” voters belonged to the far-left Linke party, who believe the bailout fund will make banks richer and ordinary Europeans poorer. Just a month ago, test votes suggested up to 25 coalition MPs were planning to rebel after polls showed three-quarters of Germans opposed the bill. Had Merkel failed to pass the vote without relying on support from opposition MPs from the Social Democratic (SPD) and Green parties, many analysts believed the coalition would have collapsed. “This shows the clear determination of the coalition on this issue,” Rainer Brüderle, parliamentary leader of Merkel’s junior partner, the FDP, told a broadcaster after the vote. “We have made an important decision for Europe.” Yet Frank Schäffler, also of the Free Democrats, argued that bailout measures had worsened Greece’s economic situation. “Despite all arguments, the first bailout did not make the situation for Greece better, but worse,” Schäffler said. “Expanding the fund will make the situation even worse.” Although a European commission spokesman issued a bland statement welcoming the Bundestag vote – “Once ratified by the remaining member states, we will have a stronger and more versatile tool at our disposal to ensure financial stability in the euro area” – officials were privately delighted that it signalled Germany’s re-commitment to the single currency. Officials close to José Manuel Barroso, the EC president, signalled that he intends to press ahead with his proposals for eurobonds – including those which would require significant changes to the EU treaty. Such changes would require up to four years to be agreed upon and implemented after an intergovernmental conference. So the talks about a “new” enhanced EFSF are said to take on an added urgency. Barroso’s aides also confirmed that he wants the EFSF’s planned, permanent successor, the European Stability Mechanism, to be in place far earlier than the proposed July 2013 – even as early as mid-2012. This would also require speedy ratification by the eurozone’s 17 national parliaments. European debt crisis Angela Merkel European banks Europe Greece Germany Nicolas Sarkozy European commission Helen Pidd David Gow guardian.co.uk

Posted by on September 29, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.