BRUSSELS (Reuters) - Euro zone leaders have promised new powers for their joint rescue fund but face hurdles in convincing sceptical parliamentarians at home to back their pledge.
National leaders agreed on July 21 to allow the European Financial Stability Facility (EFSF) to give precautionary loans to countries under attack in the markets and to buy sovereign bonds to prop up struggling states.
The 440-billion-euro (385.9-billion-pound) EFSF will also be allowed to lend governments money to recapitalise banks. The same powers will be given to the permanent European Stability Mechanism (ESM), which takes over from the EFSF in mid-2013.
But some lawmakers argue the changes go too far, casting uncertainty over the future of the fund as well as more ambitious proposals being pursued by some to increase the size of the EFSF.
Following is the state of play in countries whose support is critical to strengthening the EFSF and their position on joint euro zone bonds.
GERMANY - A rift has emerged in Chancellor Angela Merkel’s government ahead of the parliamentary vote on September 29 to approve the changes to the fund, with her Liberal FDP partners demanding debate on even the expulsion of Greece from the euro.
Ultimately, the German parliament is likely to give the green light to changes to the EFSF’s powers.
But should Merkel fail to rally sufficient support within her own government and rely on the help of the opposition, which has said it will support the motion, this could trigger a confidence vote on her leadership.
There are few parties politically strong enough to want to call such a vote, but even the remote possibility raises the stakes for Merkel.
Merkel has not explicitly ruled out increasing the size of the EFSF, but to do so in the face of growing domestic concern that Germany is doing too much to help weak euro zone states could prove explosive.
She has dismissed calls for a common euro zone bond, an instrument that would allow states like Greece to reduce their cost of borrowing at Germany’s expense. Even should she change her mind, Germany’s top court has effectively ruled them out.
FRANCE - France’s parliament approved reform of the EFSF earlier this month, becoming the first euro zone country to write it into law.
France has said it would be premature to push for the creation of common euro zone bonds, and this should come at the end of a process of greater fiscal and budgetary integration in the 17-nation euro zone.
It sees the creation of a euro zone president, stricter fiscal rules for euro area countries and greater harmonisation of tax rates in Europe as moves towards a common euro bond.
This also reflects France’s desire for closer ties to economically-stronger Germany, although Berlin may be less keen on that.
SLOVAKIA - Having made painful budget reforms and spending cuts in order to join the euro zone in 2009, many in Slovakia, the area’s second poorest country, were opposed to giving aid to richer Greece last year.
The ruling coalition led by Prime Minister Iveta Radicova now faces a bumpy road to approve strengthening of the EFSF.
Majority support is uncertain, because her coalition partner, SaS, led by Richard Sulik, remains adamant in opposition to expanding the EFSF’s mandate.
Sulik said the Slovak parliament would vote on the EFSF in December at the earliest, although Finance Minister Ivan Miklos has warned against waiting until then. Miklos has ruled out supporting a common euro zone bond and said it is too early to discuss increasing the size of the EFSF.
FINLAND - Finland’s parliament is set to start discussing changes to the EFSF next week with a vote expected later this month.
While Prime Minister Jyrki Katainen leads a pro-Europe government, he is under pressure from voters fed up with bailing out indebted countries while they face austerity at home. The opposition True Finns strongly oppose the bailouts.
Responding to this, Katainen has demanded collateral in exchange for new loans to Greece, a condition that irked other euro zone countries and raised worries about a possible delay to the second aid package for Athens.
In the unlikely event that Finland were to withdraw from the euro zone’s bailout programme for Greece, if it does not get security or collateral for its loans, it would overshadow any attempts to bolster the EFSF.
Finland is against expanding the size of the EFSF and issuing common euro zone bonds.
NETHERLANDS - Against a backdrop of rising euro scepticism and dwindling public backing for bailouts, the Dutch government faces a delicate balancing act to win support for broader EFSF powers.
Most of the changes do not legally require parliamentary approval, but politically, the government needs its backing and will put the matter to a vote by early October.
A debate in parliament earlier this week showed that many lawmakers remain sceptical, although they are expected to back the changes.
Prime Minister Mark Rutte’s minority centre-right coalition of Liberals and Christian Democrats depends for support on the euro sceptic Freedom Party, led by Geert Wilders.
Wilders is, however, against supporting Greece and will refuse to back further powers for the EFSF, forcing Rutte to turn to the Labour party and other opposition groups.
The Dutch government is not in favour either of increasing the EFSF’s size or of euro zone bonds.
It recently proposed a budget enforcer for Europe with power to sanction spendthrift states and, if necessary, force them out of the euro zone.
AUSTRIA - Failure to get fast-track approval earlier this week for a vote in parliament on extending the powers of the EFSF vote now means that approval could slip into October, but the government majority should hold easily.
Austria is opposed to euro zone bonds and does not want to increase the size of the EFSF.
It has also led opposition to a Finnish-Greek deal securing collateral for Finland on any loans to Athens, although Finance Minister Maria Fekter told Reuters there was a plan to resolve the row.
Reporting by Ritsuko Ando in Helsinki, Sara Webb in Amsterdam, Michael Shields in Vienna, Daniel Flynn in Paris, Annika Breidthardt in Berlin and Martin Santa in Bratislava; writing by John O'Donnell; editing by Ron Askew