Europe again steps back from brink in debt crisis

BERLIN Thu Sep 29, 2011 6:54pm BST

1 of 2. German Chancellor Angela Merkel gestures during the session of the Bundestag lower house of parliament in Berlin, September 29, 2011.

Credit: Reuters/Tobias Schwarz

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BERLIN (Reuters) - Following a now-familiar script, Europe again averted disaster in its debt crisis when German lawmakers rallied behind Chancellor Angela Merkel to approve a stronger euro zone bailout fund on Thursday.

But bigger challenges loom for the euro zone now. Financial markets are already anticipating a likely Greek default and demanding more far-reaching measures to prevent the crisis that began in Athens from spreading far beyond Europe and its banks.

The Bundestag (lower house) overwhelmingly approved new powers for the 440-billion-euro EFSF fund to make precautionary loans, help recapitalise banks and buy distressed countries' bonds in the secondary market.

Despite a rebellion by 15 backbench Eurosceptics, Merkel won 315 votes from her own centre-right coalition, enough to avoid the humiliation of having to rely on the opposition Social Democrats and Greens to pass the plan.

"The result of the vote is a strong signal for Europe. The broad majority in parliament clearly shows that Germany is committed to the euro and to protecting our currency," said Hermann Groehe, general secretary of her Christian Democratic party.

The measure was part of a July 21 agreement by euro zone leaders meant to solve the crisis by providing a second bailout for debt-stricken Greece, partly funded by private sector bondholders, and providing more firepower to prevent contagion engulfing bigger EU economies Spain and Italy.

But that deal failed to stop Italian and Spanish borrowing costs soaring, forcing the European Central Bank to intervene in August to buy their bonds, and may yet unravel in Greece, which has fallen behind again on its deficit reduction targets, pushing it closer to default.

"There is a growing realisation, even among the more reticent, that the July 21 package is yesterday's war, and we need to go further," a senior EU official said, speaking on condition of anonymity.

The euro and European shares ticked up and safe-haven German bonds fell after the closely-watched vote in Europe's pivotal power, where public opposition to further bailouts is rife.

But analysts said financial markets and outside powers still want a more comprehensive response from European Union policymakers to the debt crisis.

U.S. President Barack Obama kept up a drum beat of criticism of the EU's crisis management, saying on Wednesday: "In Europe, we haven't seen them deal with their financial system and banking system as effectively as they need to.

EU officials are already working on ways of leveraging up the rescue fund, but kept those legally and politically fraught options under wraps ahead of the German vote to avoid antagonising waverers in the Bundestag.

Underscoring the sensitivity, German Economy Minister Philipp Roesler, leader of the liberal Free Democrats, junior partners in Merkel's coalition, said on a visit to Brussels after the vote that Berlin does not want to leverage the bailout fund.

The European Commission welcomed German approval of the EFSF boost and said it was confident the ratification process would be complete throughout the 17-nation currency area by mid-October.

Elsewhere in Europe, there was a sense of relief. French President Nicolas Sarkozy telephoned Merkel to congratulate her and invited Greek Prime Minister George Papandreou to talks in Paris on Friday to discuss Greece's precarious debt situation. Papandreou met Merkel in Berlin on Tuesday.

Cyprus also back the EFSF's new powers on Thursday, taking the number of states that have approved to 12. Of the remainder only Slovakia's endorsement looks politically tricky.

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Comments (4)
notonmytaxes wrote:
blah blah blah bail out , greek default , euro troubles blah ………it goes on and on and on . but with some european countries like greece retiring in their early 50s , why the hell should i work til 67 to pay for other coutries enhanced pay , pension and retirement benefits .
it is not just about closer political / monetary unity and to concentrate on these limited areas turns a blind eye to the fundamentals . it is not just about debt / politics . it is about the citizens of the eurpoean project and for europe to work there need to be a common playing field . revolution works when the people become disaffected with the situation and by ommitting to address the disparities within the union that affect the citizens those that seek to govern fail to represent those very people that elected them to govern . when they start to govern by divine/perceived right and fail to represent the people revolution becomes more likely . it is not just the euro that now seems weakened , it is the fabric of the european society that is starting to unravel . i personally no longer believe in the ability of the politicians to cope with this , and i no longer trust they have the ability to put the needs of the majority ahead of their own personal political survival . i do not trust/believe the political class any more .

Sep 29, 2011 12:36pm BST  --  Report as abuse
mgb500 wrote:
More funny money pops of thin air! The staggering amount of “money” that gets magicked into existence!

If you don’t have some gold & silver stashed..you’d better start soon!

Fiat currencies are not worth the paper they’re written on – might as well start dispensing Euros/Pounds/Dollars on a roll for use in the toilet!

Sep 29, 2011 10:56pm BST  --  Report as abuse
mgb500 wrote:
More funny money pops of thin air! The staggering amount of “money” that gets magicked into existence!

If you don’t have some gold & silver stashed..you’d better start soon!

Fiat currencies are not worth the paper they’re written on – might as well start dispensing Euros/Pounds/Dollars on a roll for use in the toilet!

Sep 29, 2011 11:02pm BST  --  Report as abuse
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