March 2, 2021

Expanded Euro Bailout Fund Clears Hurdle in Germany

BERLIN — The German Cabinet approved new powers for the euro zone’s bailout fund on Wednesday, kicking off a month-long campaign to convince sceptics in Chancellor Angela Merkel’s conservative camp to back efforts to contain the bloc’s crisis.

Concerned that Germany is ceding too much power to Brussels, some members of her center-right coalition have threatened to vote against bolstering the fund — the European Financial Stability Facility — when the lower house of parliament meets on Sep. 29.

If enough conservatives rebel, and Mrs. Merkel is forced to rely on opposition parties to pass the legislation, she could face pressure to dissolve parliament and call early elections, although the chances of that seem slim.

“It is very important to get new powers for the E.F.S.F. passed swiftly, not just because it is expected to assume the bond-buying role of the” European Central Bank, “but simply because the commitment of resources sends a very strong signal of reform momentum in the euro area,” said Silvio Peruzzo, European economist at RBS in London.

“Our working assumption at the moment is that Germany is fully on board to give the E.F.S.F. new powers. But we are at a point where the political capital is being tested,” he said.

Euro zone leaders last month agreed to boost the effective size of the fund to €440 billion, or $635 billion, and give it extra powers, including a potential role in helping to recapitalize banks.

In a sign of how important the current debate in Germany is for investors, news of the Cabinet approval pushed the euro up against the dollar.

There are fears that if Berlin insists on its parliament having a greater say in the E.F.S.F., other countries will too, limiting the fund’s ability to act swiftly to save stricken states.

Faltering economic growth in the 17-nation euro zone risks prolonging the debt crisis, which began nearly two years ago and has since spread from peripheral states like Greece, Portugal and Ireland — all of which have received bailouts — to menace bigger economies like Spain and Italy.

The German Finance Minister Wolfgang Schäuble said an expanded E.F.S.F. that would have powers to intervene in bond markets and provide precautionary credit lines to troubled member states would help the bloc “prevent contagion in good time.”

Mrs. Merkel’s conservative coalition has 330 seats in the 620-seat Bundestag, the lower house of parliament. With nearly two dozen of her lawmakers reportedly considering voting against the stronger fund, conservative leaders have come up with a proposal to assuage fears that they will be bypassed on future aid decisions.

Under the plan, the Bundestag’s budget committee would be informed of minor decisions but there would be a fuller parliamentary consultation in other cases. Norbert Barthle, chief budget expert for the conservative bloc, said that should mollify dissenting legislators without introducing lengthy new legislative hurdles.

The lawmakers’ insistence on having more influence over the deployment of the rescue fund is expected to be upheld by Germany’s top court next Wednesday.

In what is expected to be a landmark ruling, many legal experts expect the Constitutional Court to say that the government broke no laws by contributing to euro-zone bailout funds, but that Parliament should be consulted more.

As Europe’s biggest economy, Germany foots more than a quarter of the bill for euro zone bailouts.

“Governments in the euro zone can no longer assume they can take decisions that affect their citizens very closely without consulting their parliaments,” said political scientist Oskar Niedermayer at Berlin’s Free University. “It has become clear that this no longer works in Germany, and I think parliaments elsewhere in the euro zone will be even more difficult.”

The Bundestag vote on Sep. 29 will be followed by a vote in the upper house, the Bundesrat, the next day, which would allow ratification of the fund by the end of the month as Mrs. Merkel and the French President Nicolas Sarkozy have promised.

This month Germany also starts discussing the permanent bailout fund that is to become operational in mid-2013, the European Stability Mechanism, which has to be ratified by year-end.

Frank Schäffler, a lawmaker with the Free Democrats, junior partners in Mrs. Merkel’s coalition and a bailout sceptic, said it was possible she would manage to push through the E.F.S.F., “but I don’t believe the Bundestag will give her a majority on the E.S.M.”

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