German parliament agrees to bailout

BOTH houses of the German parliament voted to contribute €22.4 billion to the €110bn joint eurozone IMF aid package for Greece after a stormy debate in the lower house.

Chancellor Angela Merkel warned that what they were witnessing was a battle between the markets and Europe’s governments, and she was determined to win.

She was supported by her finance minister, Wolfgang Schaeuble, who said it would be disastrous to risk a member of the eurozone becoming insolvent: “We must defend our common European currency… and at the same time defend the whole European project.”

He also invoked history, saying the loan would continue Germany’s post-war tradition of working for peace in Europe adding that the single currency was the right direction to take.

“There is no alternative to them in the 21st century, in this age of globalisation”.

In the end Ms Merkel won by a comfortable majority as the Social Democrats abstained when she refused to support their demand for a transaction tax on banks leaving just the left-wing to vote against. The final tally was 390 for with the ruling coalition being joined by the Greens, 72 from the Left Party against and 139 abstentions.

The upper house, the Bundesrat, followed suit and Germany’s president, Horst Koehler was due to sign it into law last night. Dr Koehler is a former IMF director.

In the meantime a group of five well-known and elderly economists and lawyers went through with their threat and lodged an appeal in the Constitutional Court against the loan.

A court spokesperson said the judges may rule on it over the weekend.

The market reaction was mixed with the euro gaining for the first time in weeks but shares continued to fall, encouraged by the continuing protests in Athens against the austerity measures they must make to get the bailout money.

The loan has become as much a matter of saving European banks as saving the currency in the last few days with ratings agency Moody’s warning that even banks with good creditworthiness could be hit by the current worries over national debt in the eurozone.

This has been reflected in the voluntary contribution agreed by German financial institutions for Greek banks and which yesterday amounted to €8bn.

German banks have a huge €33.4bn exposure in the form of loans and bonds to Greece.

Germany also has a vested interest in preventing the crisis engulfing other euro countries where they have even bigger exposure, such as more than €123bn to Italian banks, €156bn to banks in Spain and €29bn to Portuguese banks.

But for the chancellor, the battle moves to the country’s most populous federal state of North Rhine-Westphalia (NRW) where there are elections tomorrow.

For the past five years power has been held by the Christian Democrats and the Free Democrats (CDU-SDU), the same coalition Ms Merkel leads in Berlin.

There are signs the coalition could lose control of this lander and its industrial capital of Dusseldorf and the voters may revert to their traditional left-wing stance, and deprive the chancellor of her majority in the upper house, the Bundesrat.

Many believe Ms Merkel’s refusal to contemplate bailing out Greece and the ensuing delay was because she feared it would lose her the election in NRW.

Now she will have to wait until tomorrow evening to discover how the electorate reacted to what many saw as dithering, and to whether voters have been swayed by the discussions in Brussels on Thursday night.