Tags: Germany | Merkel | Test | Euro | Vote

Germany's Merkel Faces Biggest Test in Euro Vote

Thursday, 29 Sep 2011 07:07 AM

 

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German Chancellor Angela Merkel faces a critical challenge to her authority on Thursday when some of her coalition, worried about throwing good money after bad by bailing out Greece, could humiliate her in a vote on euro-zone rescue schemes.

Support from the centre-left opposition will ensure Germany passes the bill on new powers for the European Financial Stability Facility (EFSF), which some countries like Finland have ratified but others, including Slovakia, are disputing.

But if dissent in her coalition forces Merkel to rely on opposition votes to pass the new powers for the 440 billion euro ($600 billion) rescue fund, it would be politically damaging for the conservative chancellor and undermine her ability to pilot fresh measures to combat the eurozone debt crisis.

Merkel's Christian Democrats (CDU) and their allies were pressuring a handful of dissidents to get in line before the vote at 11 a.m. (0900 GMT). It should be clear about half an hour after that the EFSF has been passed, but any word on how many government lawmakers rebelled could take another hour.

"We are working to convince people," CDU second-in-command Hermann Groehe told Reuters. He said "it will be close" but the government would not put itself in the humiliating position of depending on the Social Democrats (SPD) and Greens.

Merkel tried to assure her coalition that German taxpayers' money would not be wasted by voting for a new bailout for Athens — but she could not rule out that the money might be written off if, as financial markets increasingly fear, Greece defaults.

With Germany shouldering up to 211 billion euros of the EFSF guarantees, critics fear the fund will not be enough and taxpayers will be asked for more.

That impression was reinforced by talk at the International Monetary Fund last weekend of the need to beef up the EFSF even more — on top of the extra powers decided by European leaders in July — by leveraging its capital and bring forward the permanent scheme supposed to replace it in mid-2013.

German Finance Minister Wolfgang Schaeuble denied just hours before the vote that he had used "that word" — leverage — and said in a radio interview "we have to stick to what the German Bundestag (lower house of parliament) decides".

RESCUE THE EURO OR THE FDP

Merkel is often accused in Europe and at home of dithering on the euro crisis and if she does not win the EFSF vote on her own terms, it would damage her hopes of taking the conservative bloc she has led for 11 years into the next elections in 2013.

International auditors return to Athens on Thursday to deliver their verdict on whether Greece's tougher austerity measures qualify for further aid.

The chancellor has told Greece she wants to wait for the results of an audit by the "troika" of the European Union, European Central Bank and IMF to see whether its findings "tell us we will have to renegotiate or not".

Such talk by Merkel and other German officials may refer to raising the level of private creditor involvement in the Greek bailout, by getting them to accept bigger potential losses — or "haircuts" — on their Greek sovereign bond investments.

Senior coalition figures like Economy Minister Philipp Roesler, head of Merkel's Free Democrat (FDP) partners, have already said an "orderly" Greek default should not be taboo.

With a core of naysayers in the CDU, its Bavarian allies the CSU and the FDP, the vote will be scrutinized to see how close she gets to a convincing 311 'yes' votes from her own bloc in the 620-seat Bundestag.

If there are more than 19 rebels, Merkel will have passed the EFSF thanks to the centre-left opposition and may have to rethink how to address growing discontent among her supporters and the population at large about the eurozone debt crisis.

Sentiment remains divided. Even though labor unions called on MPs to back the measure, the conservatives' "Mittelstand" small business alliance urged MPs to vote 'no'.

"It is personally a difficult decision but politically the correct one," the group said.

The SPD and Greens have won a run of state elections this year and, with two more votes in coming months on the second Greek bailout and a permanent mechanism to succeed the EFSF, can portray themselves as defenders of the single currency.

With the FDP's popularity sliding to just 2 percent in some recent polls and state elections, and the party increasingly critical of eurozone bailouts, it often appears more of a liability than an asset for Merkel.

"In the end, the chancellor will have to decide: either she wants to rescue the euro or the FDP," said former SPD foreign minister Frank-Walter Steinmeier of the SPD to Bild newspaper.

© 2014 Thomson/Reuters. All rights reserved.

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