Merkel faces crunch euro vote as Greece awaits bailout

29th September 2011, Comments 0 comments

Chancellor Angela Merkel Thursday faced a crunch test of her authority in a vote by German lawmakers on boosting the EU's rescue fund, as debt-ridden Greece underwent a pivotal international audit.

European markets opened down, following a see-saw session on Wall Street as initial euphoria over a possible viable solution for Europe's debt woes gave way to new uncertainty as traders kept one eye on Berlin, the other on Athens.

On what conservative newspaper Die Welt described as a "fateful day" for Merkel, deputies in Germany's Bundestag lower house of parliament were set to vote on expanding the size and scope of the EU's bailout fund, the EFSF.

With the 17-nation eurozone in a crisis so severe that US President Barack Obama said it was "scaring the world", the Frankfurter Allgemeine Zeitung daily drew parallels with the last financial market meltdown in 2008.

"The ghost of Lehman Brothers will be hanging over German MPs when they vote today," it said, referring to the US investment bank whose collapse touched off a global economic panic.

The legislation is certain to pass, as opposition parties have pledged to vote in favour, but Merkel, named the world's most powerful woman by Forbes magazine, faced a backbench rebellion as Europe looks to her for leadership.

Around a dozen of her conservatives and a handful of deputies from her junior coalition partners, the Free Democrats, have threatened to vote no or abstain.

If 19 of her allies fail to toe the party line, she faces the humiliation of having to rely on the opposition, which could call into question the future of the government, sparking a political crisis and more uncertainty for markets.

"Today in the Bundestag, we have an important decision for the future of our country and for the future of Europe," Volker Kauder, who leads Merkel's parliamentary group, told deputies as he opened the debate.

Merkel herself has played down the importance of getting her own majority but a failure to do so would be a stinging blow to her authority and could even prompt calls for new elections in Europe's top economy.

"If Merkel does not get enough votes from her own camp, it would be a sign of weakness. The financial markets would probably go crazy again. And Germany would have a huge government crisis," the mass circulation Bild said in its online edition.

"This is decision day for the euro, for Chancellor Angela Merkel and for the ... coalition," added Germany's most-read paper.

Under the spectre of a looming Greek default, the 620-member Bundestag will likely be the 11th of the 17 eurozone parliaments to ratify an expansion of the 440-billion-euro ($599-billion) bailout fund.

The expansion, which also gives the fund greater powers, for example to buy sovereign bonds, would also increase the contribution of Germany, Europe's paymaster, to more than 200 billion euros in debt guarantees.

"It is more or less guaranteed that the German parliament will agree to the proposed changes," said Antje Praefcke, an analyst from Commerzbank.

"The markets would nonetheless not be able to breathe a sigh of relief. The news flow from the eurozone is unlikely to ease off over the coming days," added the economist.

Felix Eschwege, an economist at Natixis, also said the vote was sure to pass but that the majority was key for Merkel's ability to push through potential future bailout packages.

"Passing the bill only with the help of opposition votes could be problematic in terms of future decisions on the euro zone crisis by the German parliament," he said.

Meanwhile, auditors from the European Union, the International Monetary Fund and the European Central Bank returned to Athens to decide whether Greece has undertaken sufficient reforms for its next slice of bailout cash.

The eight-billion-euro aid package is the sixth slice of aid that Greece badly needs to stay afloat amid growing social unrest in the country.

As Greece waits for the funds from a first 110-billion-euro ($150 billion) bailout approved last year, several eurozone states have yet to sign off on a second 159-billion-euro Greek rescue package that was agreed in July.

Finland's parliament finally approved changes to the fund on Wednesday, despite deep-rooted reluctance there to bailing out eurozone strugglers.

But another six of the 17 eurozone states still have to approve the measure.

Even if auditors decide the Greeks are doing enough to merit more financial aid, eurozone partners and the International Monetary Fund will still have to sign off on the money.

Finance ministers meet on Monday in Luxembourg, but EU economic affairs spokesman Amadeu Altafaj indicated that the talks in Athens would not be concluded in time for a decision by then.

Greek austerity measures have met fierce resistance and Athens was again paralysed by a transport strike Wednesday, with police again using tear gas, ahead of protests by pensioners, municipal workers and students.

London's FTSE 100 index of leading shares slipped 0.75 percent to 5,178.41 points, Frankfurt's DAX 30 lost 0.41 percent to 5,555.07 points and in Paris the CAC 40 retreated by 0.58 percent to 2,978.26. Asian markets were mixed in choppy trade ahead of the vote after losses on Wall Street.


© 2011 AFP

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