Debt Crisis: Merkel facing coalition battle to rubber-stamprescue-fund reform
Embattled leader may be forced to beg opposition Social Democrat politicians for support as eurosceptics in her party threaten revolt
German Chancellor Angela Merkel may fall short of a majority in her own coalition for a crucial reform of the eurozone rescue fund meant to stop a sovereign debt crisis spreading, in what would be a severe blow to her authority, a test vote showed.
Talk of proposals to leverage up the €440bn bailout fund to multiply Europe's financial firepower lifted global stocks yesterday but made it harder for Merkel to unite her fractious centre-right coalition.
The Bundestag (lower house) is sure to approve a widening of the scope of the European Financial Stability Facility (EFSF) to aid weak states and banks, agreed by European leaders in July, since the opposition Social Democrats and Greens say they will vote for the measure tomorrow. But a revolt by eurosceptical backbenchers hostile to further bailouts in Merkel's conservatives and their liberal Free Democratic coalition partners may leave her without a majority in her own camp.
If more than 19 coalition lawmakers vote against or abstain, Ms Merkel will be dependent on opposition votes in a political humiliation that could weaken her ability to push through future rescues.
German Finance Minister Wolfgang Schaeuble was forced to deny that any increase in the volume of the bailout fund is planned in a bid to calm irate centre-right lawmakers.
"We do not intend to increase it," Mr Schaeuble told n-tv.
That did not directly address the question of whether the EFSF fund could be leveraged to raise more money to prevent contagion spreading from Greece to Italy and Spain, the eurozone's third and fourth economies.
Leverage would make it possible to borrow more, probably from the European Central Bank, for financial fire fighting without increasing the EFSF's size, but critics say it would also raise German taxpayers' liability for any losses.
Some lawmakers are concerned that EU officials are just waiting for them to approve what they were assured would be the final increase before pressing ahead with bigger bailout plans. French Finance Minister Francois Baroin made clear there were tactical reasons to avoid discussing how to boost the fund's firepower before the German decision.
"It is out of the question to put forward, three days from the Bundestag (lower house) vote, the issue of whether we should increase the fund... Let's not open a Pandora's box on something that is a red flag for Germany," he said.
France Prime Minister Francois Fillon told his country's parliament that France would set out proposals to step up the battle against "speculative attacks" on the eurozone once the German vote was over.
The fund's status was bound to evolve but it was premature to say whether it might work "like an equity fund with a lever effect," Mr Baroin added.
Ms Merkel assured Greece Prime Minister George Papandreou at a meeting yesterday in Berlin that Germany wants a strong Greece and would do everything necessary for that. She also said she was confident her coalition would have the votes on its own to pass measures boosting the eurozone rescue fund. Mr Papandreou told Ms Merkel that Greece needed Europe's solidarity. "It is very important to receive a signal of support from our European partners," he said.
Earlier, Mr Papandreou had promised German industrialists that Greece would meet its commitments under its EU/IMF bailout programme despite missing key fiscal targets so far. "I can guarantee that Greece will live up to all its commitments," he said.
Ms Merkel told the same forum: "We will provide all the help desired from the German side so that Greece regains trust." However, some of her ministers have openly questioned the country's ability to avoid default and stay in the eurozone. The Greek parliament approved a deeply unpopular new property tax yesterday, one of several extra austerity measures the government is rushing through to plug a budget hole uncovered by EU/IMF inspectors earlier this month.
Ordinary Greeks, exasperated by pay and pension cuts, mass unemployment and tax rises, staged new strikes and demonstrations yesterday.
German and French government economic advisers urged in a joint article on yesterday that Greece be allowed to write off around 50pc of its debt and called for support for banks with large Greek holdings.
Greek Finance Minister Evangelos Venizelos said speculation on a default was harming his country and it was crucial to stick to the July 21 agreement on a second rescue for Greece. (Reuters)