Monday 19 February 2018

Merkel's cabinet passes measures to boost EFSF

Thomas Molloy

GERMAN Chancellor Angela Merkel's cabinet yesterday approved measures to bolster the European Financial Stability Facility (EFSF), which is helping to bankroll Ireland, but the chancellor faces an uphill battle to convince sceptics in her own party to back further efforts to contain the crisis.

Finance ministers agreed in July to boost the effective size of the EFSF to €440bn and give it extra powers, including a potential role in helping to recapitalise banks.

Germany's share of EFSF loan guarantees will jump to €211bn from €123bn as part of the agreement.

In a sign of how important the current debate in Germany was for investors, news of the cabinet approval pushed the euro up to session highs against the dollar.

Irish and Portuguese 10-year bonds rallied, sending the Portuguese yield down almost seven basis points to 10.15pc and equivalent Irish debt down four basis points to 8.4pc.

The markets were also helped by news that unemployment in Germany fell for the 26th straight month and news that European inflation held steady at 2.5pc in August, as slowing economic growth and retreating energy costs eased price pressures across the eurozone.

While the new legislation has been passed by cabinet, it must be approved by the two houses of parliament. Around 20 members of Ms Merkel's centre-right coalition have threatened to oppose the new legislation when the lower house of parliament votes on September 29.

If enough conservatives decide to rebel and Ms 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.

"This is a fundamental question for our children and grandchildren, whom we're already saddling with mountains of debt, and then we're adding huge risks on top of that," said the most prominent dissident, Wolfgang Bosbach, who is normally a party loyalist with impeccable conservative credentials.

Mr Bosbach said he did not relish the risk of a vote of confidence in Ms Merkel, but was no longer prepared to rubber-stamp aid for heavily indebted countries like Greece with measures that could cost future generations dearly.

Despite the rebellion, most analysts still believe that the government will secure a majority without depending on the opposition for help.

Indo Business

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business