Germany backs euro rescue fund

Chancellor Angela Merkel won a crucial vote in the German Parliament last Thursday when a massive majority of MPs voted in favour of measures to bolster the €440 billion eurozone rescue fund.

We are buying time for these countries to get their fiscalposition in order- Merkel

The increase in the fund, known as the European Financial Stability Facility, to €780 billion, of which €211 billion will be guaranteed by Germany, was agreed to at an EU summit in July.

The EU also granted the fund new powers, allowing it to buy up bonds from debt-stricken eurozone states in order to keep their borrowing costs down. Furthermore, the EFSF will be able to indirectly bail out banks that run into trouble as a result of overexposure to bonds from indebted states such as Greece.

All 17 eurozone countries must ratify the agreement, and 14 have approved the changes so far, which means only Malta, the Netherlands and Slovakia still have to vote. They are expected to do so this month, and while it is likely that the Maltese and Dutch parliaments will back the new measures, there could be problems with the Slovak vote as one of the ruling coalition parties in Bratislava has said it is not comfortable with bailouts for Greece.

The argument of Freedom and Solidarity, a liberal party and a junior coalition partner in the Slovak centre-right government goes like this: If you want to be in the eurozone, work hard at it like we did and implement difficult austerity measures instead of lying about your economic indicators.

Although Slovakia will probably end up voting in favour of the new boosted fund – the country’s Prime Minister announced that a parliamentary vote to ratify the EFSF could take place alongside a vote of confidence in the government – the argument put forward by Freedom and Solidarity is certainly gaining ground in Europe, and in particular, Germany.

Prior to the German vote there were fears that many of Merkel’s own coalition MPs – particularly members of the Liberal Free Democrats who are facing an electoral meltdown – would vote against the measures, but in the end only 12 government MPs voted against and three abstained.

This was not enough to force the Chancellor to rely on the opposition for support, as her 19- seat coalition majority secured the vote. Had Merkel relied on the opposition to get the vote passed, her authority would have been severely undermined and this would have created political instability and rattled the markets even more.

In any case, most of the opposition Social Democrats and Greens voted in favour and the increase in the euro bailout fund was approved by 523 votes to 85, a very large majority.

German politicians tend to be very committed Europeans – even though the German public’s support for endless bailouts of eurozone countries like Greece is dwindling – and one Social Democrat MP told Merkel during the parliamentary debate: “We will vote with you because Europe needs this vote. Don’t rely on us next time.”

In order to ensure that the vote was passed, the law approved on Thursday includes a clause giving the German Parliament a say in future decisions of the EFSF. Germany’s constitutional court recently demanded greater parliamentary involvement in such decisions, and a special parliamentary committee is to be established to ensure some sort of scrutiny over future eurozone bailouts.

Germany, together with France, has taken the lead in trying to find a solution to the eurozone crisis. Both countries are strongly committed to the single currency and both have the most to lose if Greece defaults, as it is their banks which are mainly exposed to Greek debt.

Soon after the German parliamentary vote, Peter Altmaier, the chief whip of the CDU, the leading party in Merkel’s governing coalition, remarked: “A huge majority is a very strong signal to Europe, the financial markets and America that Germany is ready to resume its responsibility in the eurozone crisis.”

Chancellor Merkel has taken great political risks in her support for the eurozone. Polls suggest that 75 per cent of Germans are against an increased German guarantee in the EFSF, yet Merkel insists that saving the euro is an absolute priority. “If the euro fails, Europe will fail,” she often states.

On the other hand the Chancellor has been criticised among opposition and academic circles for dragging her feet and adopting too much of a cautious approach throughout the crisis.

Prof. Henrik Enderlein of Berlin’s Hertie School of Governance remarked recently: “As usual it is too little too late. If everything that is on the table today had been adopted six months ago, we would be in a very different place.

“What I miss is someone prepared to take the lead. When push comes to shove, what is most important for the Chancellor: saving the coalition or saving the euro?”

It is true that Merkel is a cautious character – but one must also appreciate the sheer complexity of the eurozone crisis – and she remarked recently on German television that the only solution to the eurozone crisis was a “step by step approach”. She added: “We are buying time for these countries to get their fiscal position in order.”

The question everyone would like to know is: How much time do these countries have?