Euro fund passes German test as Greece undergoes audit

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Europe's rescue fund cleared a major hurdle Thursday when German lawmakers voted overwhelmingly to beef it up, relieving markets as attention turned to a key international audit of debt-mired Greece.

Deputies voted by 523 to 85 with three abstentions to expand the size and scope of the European Financial Stability Facility (EFSF), with Chancellor Angela Merkel surviving a test of her authority amid a backbench rebellion.

Volatile markets largely took the news in their stride, as a positive result was widely anticipated, but the euro spiked up slightly on the news that Merkel had won her own majority, with only 15 MPs from her coalition defying her.

Germany thus became the 11th of 17 eurozone states to agree to boost the 440-billion-euro ($590 billion) EFSF and hand it new powers, for example to buy bonds of struggling nations.

The expansion also boosts the contribution of Germany, Europe's paymaster, to 211 billion euros, though Finance Minister Wolfgang Schaeuble insisted there would be no more cash flowing from Berlin.

"We have agreed German guarantees of 211 billion euros for the EFSF. More is not necessary," he said.

Despite fevered speculation in the run-up to the vote, Merkel did not have to rely on the opposition to pass the bill, averting a political crisis that some feared could spark new elections in Europe's top economy.

"This is a clear show of support for the common currency," said Holger Schmieding, from Berenberg Bank.

"It is good that the Bundestag voted for an expanded EFSF rescue fund with such a large majority. Europe and half the world were looking to Germany," said Merkel's spokesman Steffen Seibert on microblogging site Twitter.

German dailies had dubbed Thursday "decision day for the euro" and "a fateful day" for Merkel, amid hopes Berlin would help defuse a eurozone crisis that US President Barack Obama has said is "scaring the world."

German Foreign Minister Guido Westerwelle said that with the vote, "the signal to our European partners is that you can rely on Germany."

"Today's decision is an important contribution to solving the debt crisis and to stabilising the euro," Westerwelle said.

The European Commission also hailed the result with a spokesman for Economic and Monetary Affairs Commissioner Olli Rehn saying: "We welcome this new approval of the EFSF."

The spokesman, Amadeu Altafaj, added that the rescue fund was still a "work in progress" but stressed Brussels hopes all eurozone states will have ratified the agreement by mid-October.

As if to underline the importance of the fund's new powers, Italy issued 7.85 billion euros worth of bonds Thursday with sharply higher interest rates, signalling renewed discontent on the markets.

Former British prime minister Gordon Brown warned of more doom ahead, saying in an opinion piece in the New York Times: "It has been clear for some time that ... the euro cannot survive in its present form."

Many banks were "close to insolvency," argued Brown, also a former finance minister, adding that "a far larger rescue fund -- two, perhaps three trillion euros -- is needed to stabilise the eurozone."

Meanwhile in Athens, auditors from the European Union, European Central Bank and International Monetary Fund were meeting officials to decide whether to disburse eight billion euros ($11 billion) of crucial aid for Greece.

Eurozone finance ministers will likely decide on October 13 "whether the conditions are met for the next tranche to be disbursed," Schaeuble said in the parliamentary debate.

"I cannot say what this decision will be, I cannot anticipate the conclusions of the troika," he added, referring to the international auditors.

As staff associations occupied nearly a dozen ministry buildings in protest at the crippling austerity measures needed to tackle the country's debt pile, Athens says it has enough cash to pay the bills until the end of October.

Sources said Greek Prime Minister George Papandreou had called for a meeting with French President Nicolas Sarkozy to discuss Greece's ailing economy, following a meeting with Merkel Tuesday.

As Greece waits for the funds from a first 110-billion-euro bailout approved last year, analysts have already turned their attention to a much-needed second 159-billion-euro Greek rescue package agreed in July.

"Getting a second bailout package for Greece through parliamentary proceedings in Berlin may not be easy, to put it mildly," said analyst Schmieding.

"Putting taxpayer money at stake to support Greece is a tougher sell than to strengthen a rescue shield for Europe," he added.

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

Following the German vote, Frankfurt's DAX 30 index was up 0.51 percent at 5,610.93 points, almost unchanged compared with its level shortly before the result was announced.

In Paris, the Paris CAC 40 advanced 0.71 percent to 3,016.97 points, while in London the FTSE 100 fell 0.39 percent to 5,197.81. Madrid won 0.90 percent and Milan shot up 1.18 percent.

© 2011 AFP

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