Debt Crisis: Germany’s parliament gives green light to boosting €440bn bailout fund
GERMANY’S lower house of parliament has given the green light to boosting the firepower of the €440bn eurozone bailout fund ahead of a summit of leaders in Brussels tonight.
As a result, Chancellor Angela Merkel has been given a strong backing to negotiate at the summit and all eyes are now on whether leaders can come up with a comprehensive plan to solve the ongoing debt crisis, at the second summit in four days.
According to the results of the vote, 503 politicians voted in favor of the motion, 89 against and there were 4 abstentions.
The motion stated that the European Central Bank will no longer need to buy bonds on the secondary markets while the European Financial Stability Facility cannot be financed through the ECB.
Speaking before the vote, Ms Merkel said that European leaders should agree on what would be a write-down or haircut of 50pc for private investors exposed to Greek debt.
She also vowed to to work towards a decision this evening but warned that Greece will need 24-hour monitoring rather than the three-monthly assessments currently being conducted by the EU/ECB/IMF.
“The goal of the meeting tonight must be to get a result under which Greece will by 2020 have a debt to gross domestic product ratio of 120 percent," she said.
Merkel must convince Germans that the country, the richest in the eurozone, needs to support indebted partners like Greece, Portugal and Ireland.
But she warned that Germany’s future depends on the success of the euro.
"The world is watching Germany and Europe to see if we are ready and able to take responsibility," she said. "If the euro fails, Europe fails. That must not happen. We have a historic duty."
The euro gained ground after the vote while European stocks also rose having fallen earlier.
Germany’s DAX was up 1.11pc this afternoon while France’s CAC gained 1.49pc.
Meanwhile, a draft agreement on the European banking sector ahead of the summit suggests that banks should attempt to raise capital in the open markets before attempting to tap into the bailout fund.
The will also be restrictions on bonus payments and dividends until capital targets are met.
The aim is that they would sustain a tier one capital ratio of 9pc by June 2012.
While Irish banks may need more capital following on from new agreements, they have no exposure to Greek debt and were capitalised recently.
Many European banks, particularly French institutions, are exposed to Greek debt.
But the head of the eurozone finance ministers' group Jean-Claude Juncker has played down the chances of European leaders agreeing on a detailed plan this evening.
He said leaders are "near the moment of truth" and added “we will likely not set out everything in the finest details but the general direction".