Victory for Merkel as expanded EU bailout fund is approved
Chancellor gets stronger-than-expected support in German parliament as once again Europe steps back from the brink
FOLLOWING a now-familiar script, Europe again averted disaster in its debt crisis when German deputies rallied behind Chancellor Angela Merkel to approve a stronger eurozone bailout fund yesterday.
But bigger challenges lie ahead for the eurozone and markets are already demanding more far-reaching measures to prevent a crisis that began in Greece from spreading far beyond Europe and its banks.
Germany's Bundestag (or parliament's lower house) overwhelmingly approved new powers for the €440bn EFSF fund to make precautionary loans, help recapitalise banks and buy distressed countries' bonds in the secondary market.
Despite a rebellion by 15 backbench Eurosceptics, Merkel won 315 votes from her own conservative-liberal coalition, enough to avoid the humiliation of having to rely on opposition Social Democrats and Greens to pass the plan.
"The result of the vote is a strong signal for Europe. The broad majority in parliament clearly shows that Germany is committed to the euro and to protecting our currency," said Hermann Groehe, general secretary of Merkel's Christian Democratic party.
The measure was part of a July 21 agreement by eurozone leaders meant to solve the crisis by providing a second bailout for debt-stricken Greece, partly funded by private sector bondholders, and providing more firepower to prevent contagion engulfing bigger EU economies Spain and Italy.
But that deal failed to stop Italian and Spanish borrowing costs soaring, forcing the European Central Bank to intervene in August to buy their bonds, and may yet unravel in Greece, which has fallen behind again on its deficit reduction targets, pushing it closer to default.
"There is a growing realisation, even among the more reticent, that the July 21 package is yesterday's war, and we need to go further," a senior EU official said, speaking on condition of anonymity.
The euro and European shares ticked up and safe-haven German bonds fell after the closely watched vote in Europe's pivotal power, where public opposition to further bailouts is rife.
But analysts said financial markets and outside powers still wanted a more comprehensive response from European Union policymakers to the debt crisis.
EU officials are already working on ways of leveraging up the rescue fund, but kept those legally and politically fraught ideas under wraps ahead of the German vote to avoid antagonising waverers in the Bundestag.
The European Commission welcomed German approval of the EFSF boost and said it was confident the ratification process would be complete throughout the 17-nation currency area by mid-October.
Elsewhere in Europe, there was a sense of relief.
French Finance Minister Francois Baroin said the Bundestag vote "confirms German determination to preserve the financial stability of the eurozone".
So far 11 states including Ireland have backed the new powers. Of the rest, only Slovakia's endorsement appears politically difficult.