Europe’s rescue fund cleared a major hurdle yesterday, when German lawmakers voted overwhelmingly to beef it up, relieving markets as attention turned to a key international audit of debt-mired Greece.
German deputies voted by 523 to 85 with three abstentions to expand the size and scope of the European Financial Stability Facility (EFSF), with German 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 (US$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 German 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,” Holger Schmieding of Berenberg Bank said.
“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,” Merkel’s spokesman Steffen Seibert said on microblogging site Twitter.
German dailies had dubbed yesterday “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 stabilizing 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.”
Meanwhile in Athens, auditors from the EU, the European Central Bank and the IMF were meeting officials to decide whether to disburse 8 billion euros of crucial aid for Greece.
Eurozone finance ministers will likely decide on Oct. 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 next month.