Germany: Lawmakers rally behind the government and approve a stronger bailout fund
September 29, 2011
On 29 September, an overwhelming majority of German lawmakers voted in favour of an expansion of the EUR 440 billion European Financial Stability Facility (EFSF) fund agreed by Eurozone leaders in July. The approval, which was welcomed by the markets, provides scope for the fund to make precautionary loans, in order to help recapitalise banks and buy bonds of distressed countries in the secondary market. As Europe's largest economy, Germany's commitment to the fund will rise from EUR 123 billion to EUR 211 billion. The vote was also seen as major test for Chancellor Angela Merkel's centre-right coalition government, as some members of Merkel's coalition oppose the commitment of evermore funds to prop up debt-stressed countries. Despite the dissent, Chancellor Merkel secured 315 votes from her own centre-right coalition, which was enough to avoid relying on the opposition (Social Democrats and Greens) to add their support to the plan. Moreover, economic analysts indicate that the current tools of the EFSF and the funding are likely to be insufficient in the light of the deteriorating Greek crisis and the threat of it spreading to other countries. For the time being, all 17 Eurozone members must ratify the commitment made in July in order to expand the powers of the EFSF.
Author: Ricardo Aceves, Senior Economist