Germany lawmakers vote decisively to boost Europe bailout fund
A plan to beef up Europe’s rescue fund for debt-bound nations won a crucial vote of confidence from Germany on Thursday but faced immediate criticism as being too little, too late to contain the spiraling crisis over the euro.
Analysts welcomed the move to strengthen the bailout fund to about $600 billion, but they warned that a far larger fund and even a partial default by Greece will almost certainly be necessary to keep the crisis from swallowing up bigger nations such as Italy and Spain.
A leap in borrowing costs for Rome on Thursday showed that global investors remain unnerved by high levels of government debt and unconvinced by official efforts to deal with the problem. Critics are doubtful that Europe’s leaders can finally get out in front of a crisis that has so far outpaced their ability to respond and that many observers believe is fast coming to a head.
In Berlin, German lawmakers voted by a surprisingly decisive 523 to 85, with three abstentions, to ratify the plan. The measure not only increases their country’s contribution but also gives Europe’s bailout fund greater capacity to lend to troubled nations, buy their bonds and extend credit to cash-squeezed banks.
German Chancellor Angela Merkel lobbied for days to quell a small rebellion within her center-right coalition and push the measure through the parliament without having to rely on the opposition to scrape up a majority, which would have been a major embarrassment.
The beefed-up rescue fund requires legislative approval in all 17 nations that use the euro. Several Eurozone members have yet to vote, but Germany’s backing was the most important politically because the country boasts the continent’s biggest economy and is the largest contributor to the fund.
Thursday’s success in the Bundestag, or lower house, authorizes Merkel’s government to boost Berlin’s participation from $167 billion to $287 billion.
“This is about more than just money we’re paying to Greece. It’s about the chance to help European countries in need and thereby also the German economy,” Volker Kauder, the parliamentary leader of Merkel’s Christian Democrats, said during the debate before the vote. “It’s about our future, about jobs.”
But spending an ever-growing pile of tax money to prop up spendthrift neighbors irritates much of the German populace and inspired warnings of moral hazard from naysayers in the parliament. Outside the Reichstag, demonstrators opposing the bailout fund — which is officially known as the European Financial Stability Facility, or EFSF — held up a sign calling it the “Europe Finance Suicide Fund.”
And notwithstanding the positive outcome, the vote in Berlin underscored the slowness that has marred Europe’s reaction to the debt crisis and that has sent market traders running for the exits. The plan to strengthen the bailout fund was unveiled by European leaders more than two months ago, but it will be well into October when all Eurozone parliaments have voted on it.
By then, European officials are sure to be under heavy pressure from the United States and international investors to ramp up the bailout fund even further, by several times its present value. Many economists say that turning it into a “bazooka fund” worth more than $2 trillion is the only way to deal with debt problems in larger Eurozone countries such as Italy and assure the markets.
Some experts contend additionally that Greece must be allowed to default on some of its debts, which already exceed 150% of the country’s annual economic output.
Whether Europe’s leaders, constrained by domestic politics and European Union protocol, can act quickly is open to question.
But there are signs that they have begun waking up to the gravity and urgency of the problem. Senior EU officials are floating ideas such as a tax on financial transactions and expanded powers for the European Central Bank, or ECB, to combat the crisis.
The alarming potential consequences of inaction were on display Thursday at an auction of Italian debt, where the interest rate on Italian bonds rose to a level that Rome will find difficult to tolerate over the long term.
Silvio Berlusconi, Italy’s scandal-rocked prime minister, suffered further embarrassment with the leaking of a letter from the ECB that rebuked his government for not doing enough to foster economic growth and control its debt.
Written last month, the letter published by the Corriere Della Sera newspaper urged Berlusconi to enact labor reforms and streamline the state sector.
“Pressing action by the Italian authorities is essential to restore the confidence of investors,” the letter said.
Special correspondent Aaron Wiener in Berlin contributed to this report.
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