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Portfolio > Economy & Markets

Germany Backs Merkel, Approving Expansion of Bailout Fund

By Marlene Y. Satter

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A tough vote for Angela Merkel, chancellor of Germany, passed off without a hitch as she won enough votes from her own coalition to pass new powers for the European Financial Stability Facility (EFSF).

Failure to pull enough support from her own party would have put her political survival at risk, as well as her ability to push through additional rescue measures, as citizen protests grow louder against Germany’s increasingly expensive participation in euro zone bailouts.

Bloomberg reported that the new powers granted to the EFSF include the ability to buy bonds in secondary markets, enable bank recapitalizations and offer precautionary credit lines. Germany’s share of guarantees for the fund also increase, to 211 billion euros ($287 billion) from 123 billion euros.

The struggle is by no means over yet, however. The fear is that the new larger guarantee will still be seen by investors as inadequate and that in order to satisfy the markets, Merkel will have to return to Parliament to ask for additional funding. Reuters reported that the International Monetary Fund (IMF) discussed at its meeting last weekend the need to strengthen the EFSF even further through capital leveraging and by moving up the timetable for the permanent rescue mechanism to be put in place.

All 17 members of the euro zone must approve the steps taken to beef up the EFSF. Nine have already voted to do so, including Spain, France, Italy and Finland. Additional votes are being held Thursday and more are scheduled for Friday.

Merkel also broached the subject of renegotiating Greece’s bailout, although she has said she wants to wait for the results from the IMF and European Union (EU)/European Central Bank (ECB) inspection of Greece’s progress in reducing its debt before addressing specifics.

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