German Parliament Supports EFSF Expansion
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September 29, 2011 TheFreshOutlook  |
Chancellor Merkel has won a crucial vote in the Bundestag on whether to increase the country’s support of the EFSF.
The German parliament has approved an extension of the European Financial Security Fund on Thursday; the bailout mechanism used to assist indebted eurozone states. The motion to expand the €440bn fund passed with 523 voting for, and 85 against.
The result comes as a much needed boost to Chancellor Angela Merkel, who has come under increasing pressure in recent weeks over Germany’s role in the eurozone debt crisis. Many Germans are unhappy with what they see as the country’s unconditional guarantee of foreign debt.
Later, it will be revealed just how many of the 85 parliamentarians that voted against the motion came from within Ms Merkel’s ruling coalition. Instability in the Conservative bloc could have a negative effect on the confidence of international markets in Germany’s willingness to commit to the eurozone’s rehabilitation.
The eurozone debt crisis was offset by the financial crisis of 2008, when the public deficits of several EU states increased dramatically. Accordingly, international lenders became increasingly sceptical over the ability of certain states to repay their loans, and have thereby increased the cost of borrowing. This led to EU-IMF bailouts for Greece, Ireland and Portugal. However, the scale of the Greek debt crisis has meant the country needs extra assistance from its EU partners. Fears have also risen over the deficits of larger EU states, such as Italy and Spain.
As the eurozone’s strongest economy, Germany is burdened with the immediate cost of bailouts. Earlier this week, the rating agency S&P said the German credit rating would be cut if it continued to bailout other states. That means that borrowing costs for Germany could also rise.
The current crisis has led to calls for a stronger, more integrated European Union. Many have argued that problem would have been much less severe if the European monetary union had been complimented by a co-ordination of fiscal and spending policy.
The Bundestag vote comes on the same day as Troika inspectors arrive in Athens to decide on whether Greece should receive the latest instalment of its 2010 bailout. Questions have been raised about the government’s implementation of a severe austerity programme, something made difficult by widespread public opposition. Many Greeks are unhappy that they are being forced to shoulder the cost of a crisis which, they feel, is not of their making. There is also a feeling that the austerity programme is choking any prospect of a recovery in Greek’s decimated economy.
By Dermot Tobin
[Image courtesy of baracoder]
