Lawmakers in Germany Back Rescue for European Debt

Lawmakers in Germany Back Rescue for European Debt
By JUDY DEMPSEY
Copyright by The New York Times
Published: May 21, 2010
http://www.nytimes.com/2010/05/22/world/europe/22germany.html?hp


BERLIN — Germany’s two houses of Parliament approved a package of measures on Friday allowing the country to contribute to a nearly $1 trillion bailout package aimed at stabilizing the euro and propping up European nations that are swimming in debt.

By approving legislation that provides for loan guarantees of up to $184 billion, Germany offered a sign to jittery investors that Europe’s largest economy was committed to trying to solve the Continent’s debt crisis. Indeed, financial markets seemed to stabilize after the vote.

But divisions in the lower house of Parliament and days of acrimonious debate before the vote highlighted the unpopularity of the bailout among Germans. Germany has proposed financial sanctions against European nations that fail to put their budgets in order, a move that gained some support on Friday at a meeting of European Union finance officials. The lower house of the German Parliament, the Bundestag, approved the European bailout measure by a vote of 319 to 73, but 195 lawmakers abstained, signaling their displeasure with how Chancellor Angela Merkel has handled a crisis that has tested the credibility of the euro. Even though Mrs. Merkel’s coalition of conservatives and Free Democrats hold a majority in the Bundestag, she could not muster all the 332 votes from her own bloc, and the bill passed with a narrow majority.

The package must now be signed by President Horst Köhler, a step that is considered largely a formality.

The Bundesrat, the upper house that is represented by the 16 German states, approved the package even though Mrs. Merkel’s coalition lost its majority in that body earlier this month after being dealt an electoral defeat in the important state of North-Rhine Westphalia. There, her coalition of conservatives and Free Democrats were ousted, reflecting voters’ disappointment with how the federal government in Berlin has performed since taking office last October.

Mrs. Merkel had earlier this week sought to win wider support for the loan guarantees, telling the Bundestag that it was vital to underpin the euro, otherwise the European Union itself could be threatened.

But she failed to persuade not only her entire coalition but the opposition as well. To the anger and disappointment of the coalition, the opposition Greens, which had last month voted for an earlier rescue package for Greece, abstained. The opposition Social Democrats also abstained, and another opposition grouping, the Left Party, voted against the guarantees.

Opposition leaders said they could not vote for the package because Mrs. Merkel had shown no leadership and had no long-term strategy on how to instill public confidence in the euro.

“She has no vision, no aim,” said Sigmar Gabriel, leader of the Social Democrats. “She has no idea where this country and Europe is going.”

Lawmakers from the Green Party said they supported the package in principle. Despite that, they could not vote for it because Mrs. Merkel, they argued, had failed to inform them in any detail about how the guarantee would work.

“It was a big mistake not to inform Parliament properly,” said Fritz Kuhn, deputy parliamentary leader of the Green faction.

Guido Westerwelle, foreign minister and leader of the Free Democrats accused the opposition of putting domestic issues before the interests of Europe and the stability of the euro.

Mr. Merkel and the finance minister Wolfgang Schäuble have argued that the package was needed to defend the European common currency.

“We’re doing this in our best national interests,” said Mr. Schäuble during an impassioned speech before the vote. “The common European currency has been a huge benefit to Germany .”

He continued: “Almost two-thirds of exports go to members of the euro zone. Without the euro, we would have a much weaker economy, a much weaker Germany and a much weaker social security system.”

Friday’s vote coincided with more poor opinion polls for Mrs. Merkel’s coalition. Support for her coalition has fallen to 42 percent compared with over 50 percent a few months ago.

At the same time, over 59 percent of those asked said they were very worried about the crisis affecting the euro.

As German lawmakers voted, European Union finance ministers gathered in Brussels for the first meeting of a so-called task force established to resolve the crisis in the euro-zone. The group is led by the president of the European Union, Herman van Rompuy.

Among the issues that appeared to receive early support was a push by Germany to impose punitive measures on countries that fail to balance their books.

“The question of sanctions must take priority,” the Austrian finance minister, Joseph Proell, told reporters. “We must do everything we can so that countries that are lax with their budgets can be rapped on the knuckles.”

The French economy minister, Christine Lagarde, also appeared to be in favor of taking a harder line against laggard nations, describing the German proposals as “very interesting and really going in the right direction.”

German leaders have suggested making deficit limits legally binding and adding additional sanctions to deter countries from running up debt — such as losing European Union funding and taking away a government’s voting rights at European Union meetings for up to one year.

But no breakthroughs on long-term reforms to the way European economies will be stabilized are expected on Friday. Instead, the finance ministers are expected to meet regularly ahead of October, when Mr. van Rompuy is expected to present final recommendations.

Even so, other aspects of the tough stance taken by could highlight splits among European governments on Friday, and ministers seem unlikely to reach any definitive agreements on new rules.

Germany already aroused the ire of other governments this week by unilaterally announcing a ban on a form of market speculation called naked short selling. Britain also could offer resistance to some proposals that may be put forward by the Task Force.

George Osborne, Britain’s chancellor of the Exchequer, warned against the imposition of any new rules that would impinge on the power of the British Parliament to determine the nation’s budget.

Other thorny areas ministers could debate on Friday is whether to create a permanent fund, modeled on the International Monetary Fund, to take swifter action to bail out troubled member states in the future, and whether to explore ways that governments could pool debt under certain circumstances.

James Kanter contributed reporting from Brussels.