German Chancellor Angela Merkel Thursday won a crucial vote on boosting the EU’s rescue fund that was seen as a perilous test of her authority as debt-mired Greece braced for an international audit.
The news came as a relief to Merkel, but jittery markets took the result in their stride, as it was widely expected and with attention already turning to the eurozone’s next challenges.
Deputies in the Bundestag lower house of parliament voted by 523 to 85 in favour of expanding the size and the scope of the European Financial Stability Facility (EFSF). Three abstained.
Germany thus became the 11th of 17 eurozone states to agree to beef up the 440-billion-euro ($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.
It was not immediately clear whether Merkel had to rely on the opposition to clear the legislation, with observers saying a large backbench rebellion could touch off a political crisis and perhaps new elections in Europe’s top economy.
German dailies had dubbed Thursday as “decision day for the euro” and “a fateful day” for Merkel, as Europe and the world looked to Berlin to defuse a eurozone crisis that US President Barack Obama has said is “scaring the world.”
Opening the debate, Volker Kauder, who heads Merkel’s parliamentary group of conservatives, said: “Today in the Bundestag, we have an important decision for the future of our country and for the future of Europe.”
Merkel, named the world’s most powerful woman by Forbes magazine, has struggled to whip her centre-right coalition into line, with around a dozen deputies threatening to vote against her or to abstain.
An official headcount from the Bundestag vote was expected later Thursday.
Merkel herself had played down the importance of the size of the majority but a failure to secure the solid backing of her own deputies would have been a stinging blow to her authority.
“This is decision day for the euro, for Chancellor Angela Merkel and for the black-yellow coalition,” the mass circulation Bild said ahead of the vote, referring to Merkel’s centre-right government.
As if to underline the importance of the fund’s new powers, Italy issued 7.85 billion euros worth of bonds on Thursday with sharply higher interest rates, signalling renewed discontent on the markets.
Meanwhile, in Athens, auditors from the European Union, European Central Bank and International Monetary Fund were meeting officials to decide whether to disburse eight billion euros ($11 billion) of crucial aid for Greece.
Eurozone finance ministers will decide on October 13 “whether the conditions are met for the next tranche to be disbursed,” German Finance Minister Wolfgang 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 October.
Sources said Greek Prime Minister George Papandreou had called for a meeting with French President Nicolas Sarkozy to discuss Greece’s ailing economy, following a meeting with Merkel on Tuesday.
As Greece waits for the funds from a first 110-billion-euro bailout approved last year, analysts have already turned their attention to a much-needed second 159-billion-euro Greek rescue package agreed in July.
“Getting a second bailout package for Greece through parliamentary proceedings in Berlin may not be easy, to put it mildly,” said Holger Schmieding, an analyst from Berenberg Bank.
“Putting taxpayer money at stake to support Greece is a tougher sell than to strengthen a rescue shield for Europe,” he added.
Even if auditors decide the Greeks are doing enough to merit more financial aid, eurozone partners and the International Monetary Fund will still have to sign off on the money.
Greek austerity measures have met fierce resistance and Athens was again paralysed by a transport strike Wednesday, with police again using tear gas, ahead of protests by pensioners, municipal workers and students.
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