Germany approves 440bn euro bailout fund - but future still looking Merkel

A landmark vote by the German Bundestag has approved an increase in the European Financial Stability Facility. But it's not an answer to all of Europe's problems.

by Emma Haslett
Last Updated: 06 Nov 2012

So there we have it – German chancellor Angela Merkel must be feeling ein bißchen relieved, after German MPs voted almost overwhelmingly in favour of extending its eurozone rescue fund to €440bn (£383bn). Admittedly, the chances of MPs ever voting against the plan were fairly slim, but that Merkel got a 523-85 majority suggests the Bundestag is committed to bringing the crisis under control. What the rest of the German public will think of the vote, though, is another question altogether…

This was seen as something of a day of reckoning for Merkel (although most days are days of reckoning for Merkel at the moment) – a test of whether she had the authority to get the package approved against strong opposition from some members of her coalition. Despite assurances from Merkel and other members of the Bundestag that upping Germany’s contribution to the European Financial Stability Facility from €123bn to €211bn wouldn’t require a) money printing or b) extra contributions by taxpayers, some members of the coalition had threatened to rally against her. Which could lead to an inability to create credibility.

So what now? Germany is only one of the 17 eurozone members that need to commit to boost the bailout fund – although 10 have already voted in favour. Merkel apparently appeared ‘jolly’ after the vote – which was reflected in the currency markets, where the euro rose 0.9% against the dollar, while France’s Cac 40 and Germany’s Dax gained 0.8% and 0.7% respectively. The FTSE, since you ask, continued is downward trajectory, dropping 25 points to 5,191.

This doesn’t, however, take the onus off troubled economies. While Greece awaits its next tranche of bailout funds, it’s on the condition that it introduces ever-harsher austerity measures. And despite the encouraging nature of Germany’s vote, Italy spent the morning issuing €7.85bn worth of bonds with ‘sharply higher interest rates’ (the higher the interest rate, the riskier the bond), which the Bank of Italy said suggested ‘renewed discontent’ on the markets. So even if the EFSF is nicely plumped up, that doesn’t mean the doom and gloom is over for those living in economies with high amounts of debt.

Which is why the UK’s opposition to a ‘Tobin tax’ on transactions, proposed by the EU, probably won’t go down terribly well in Europe. UK businesses and financial institutions – and, potentially, the Chancellor – have railed against the idea, calling it an ‘assault on the City of London and companies seeking to protect themselves against market uncertainty’. The idea, which was unveiled by European Commission president Jose Manuel Barroso during his State of the Union address on Wednesday, could apparently raise €55bn a year for the EU. Although France and Germany have already got behind it, for it to be introduced, all 27 EU member states would have to agree to it – and judging by the reaction from UK business, it doesn’t look likely anytime soon...

- Image credit: Flickr/arne.list

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today