Merkel’s Cabinet Backs Rescue Measures

Support suggests lawmakers will approve changes to European rescue fund.

German Chancellor Angela Merkel’s Cabinet ratified expanded measures to combat the euro-area debt crisis as she quells a rebellion among coalition lawmakers that threatened to derail the package.

Senior members of Merkel’s Christian Democrats including finance and economy spokesman, Michael Meister, and floor leader Volker Kauder said this week they are now confident of securing a coalition majority for the proposed changes to the European rescue fund. Merkel yesterday pledged to consult lawmakers as much as they felt necessary to dispel lingering doubts.

“We’re in a now-familiar phase of ifs and buts from lawmakers, but the bill will pass,” Peter Grottian, a politics professor at Berlin’s Free University, said by phone yesterday. “What’s more painful: risking the collapse of the government and a devastating economic backlash, or gritting your teeth and waving through a bill that may be effective even if you don’t understand it?”

Ministers meeting in Berlin today backed a reworked European Financial Stability Facility including sovereign bond- buying powers, raising Germany’s share of EFSF loan guarantees to 211 billion euros ($305 billion) from 123 billion euros. The measures were agreed on by European leaders at a July 21 summit.

Euro, Bunds
The euro reversed an earlier decline and was little changed at $1.4444 as of 12:30 p.m. in Berlin after the Cabinet decision. Irish and Portuguese 10-year bonds rallied, sending the Portuguese yield down almost 7 basis points to 10.15 percent and equivalent Irish debt down 4 basis points to 8.4 percent. German bund yields were little changed at 2.15 percent.

In passing the enhanced EFSF, “the German government has strengthened its determination to secure the stability of the euro with a powerful set of tools at the Euro zone level,” Finance Minister Wolfgang Schaeuble said in an e-mailed statement.

Merkel still faces resistance from lawmakers in her Christian Democrat-led coalition who say that Germany, Europe’s largest economy and the biggest country contributor to bailouts for Greece, Ireland and Portugal, is putting too much taxpayer money on the line for future rescues. With two state elections looming next month, some lawmakers have said they’ll refuse to back the government line in a vote due by the end of September.

‘Mountains of Debt’
“This is a fundamental question for our children and grandchildren, whom we’re already saddling with mountains of debt -- and then we’re adding huge risks on top of that,” Wolfgang Bosbach, the CDU chairman of parliament’s interior- affairs committee, said on ARD television today. “I’m not against helping Greece,” he said. “I just doubt that ever- higher debts can actually help.”

A Finance Ministry preamble to the draft bill gives parliament the right to decide how it participates in EFSF operations, satisfying a key demand of the coalition parties, according to a copy prepared for Cabinet and the parties obtained by Bloomberg News.

It invites lawmakers to make proposals on separate legislation due to go to parliament in October on Germany’s contribution to a second aid package for Greece. The draft also shows that enhancements to the EFSF won’t allow banks in need of capital to tap the euro backstop directly.

“You can be sure that the Bundestag will have the level of consultation on all questions regarding the European rescue fund that lawmakers themselves feel necessary,” Merkel told the Nordkurier newspaper in an interview published on her CDU party website yesterday. She told reporters in Slovenia yesterday that she was “committed” to having parliament approve the June 21 decisions taken by EU leaders in Brussels.

Party Conclaves
The debt crisis is the focus of a two-day meeting of the Christian Democrats that begins in Berlin today. The CDU’s Free Democratic Party coalition partner, which has adopted a more skeptical tone to bailouts, began a similar conclave yesterday.

The parties meet as campaigning intensifies for a regional election in Merkel’s home state of Mecklenburg-Western Pomerania on Sept. 4. That vote is followed on Sept. 18 by a state election in Berlin, the last of seven regional ballots this year which have seen the coalition parties punished as voters railed against public bailouts of indebted euro-area countries. Polls suggest the opposition Social Democrats will win both elections.

Nationally, support for Merkel’s CDU-led bloc rose one percentage point to 33 percent, while the FDP held at 5 percent, a weekly Forsa poll for Stern magazine showed today. That’s eight points behind the Social Democrats and Greens, down from a 10-point gap last week. Forsa polled 2,500 voters on Aug. 22-26. The margin of error was as much as 2.5 percentage points.

Parliamentary Vote
The parliamentary vote on changes to the EFSF is scheduled for Sept. 29. While the SPD and Greens have said they’ll back the measures, ensuring the legislation passes, any rebellion by Merkel’s own bloc would risk destabilizing the coalition.

For all the resistance to providing ever-more aid, the consequences of voting down the bills mean it’s a step too far for most lawmakers, according to Manfred Guellner, the head of polling company Forsa.

“Few in the ruling coalition want to risk being sent into the political wilderness if rejecting this bill means new federal elections,” Guellner said by phone. “In a crisis that is so complex, where so much is at stake and where no one has a simple solution, it makes sense to seek consensus. That’s why we hear supportive noises from the main opposition parties and why a coalition majority is likely.”

Bloomberg News

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