German MPs back bailout boost

German lawmakers today backed an expansion of the size and powers of the eurozone bailout fund, in a major step toward tackling the bloc’s sovereign debt crisis.

A clear majority in Germany’s lower house of parliament voted in favour of expanding the fund’s capacities in a vote that was also seen as a test of Chancellor Angela Merkel’s centre-right coalition.

The vote means Germany will be guaranteeing loans worth €211bn to the so-called European Financial Stability Facility, or EFSF, bailout fund.

The measure will be put to the upper house of parliament on Friday, where it is expected to pass.

The measure had been largely expected to pass the lower house but a lively debate ahead of the vote reflected how divided Germans remain over their role as Europe’s economic power.

Of 611 lawmakers present, 523 voted in favour, while 85 voted against it. Only three lawmakers abstained, meaning that Germany in the future will be guaranteeing loans to the bailout fund, the so-called European Financial Stability Facility, or EFSF, of up to €211bn, rather than €123bn so far.

The vote also highlighted tensions in Mrs Merkel’s centre-right coalition that was strained by threats of dissent from many members who balked at the cost of propping up the eurozone’s strugglers.

“Today we will make an important contribution to our nation, to Europe and to the stability of the euro,” Volker Kauder, the parliamentary leader of Mrs Merkel’s bloc, said in opening remarks on the debate.

Yet Frank Schaeffler, a member of Mrs Merkel’s junior partner, the Free Democrats, argued that bailout measures have worsened Greece’s economic situation.

“Despite all arguments, the first bailout did not make the situation for Greece better, but worse,” Mr Schaeffler said. “Expanding the fund will make the situation even worse.”

The lawmakers – under close scrutiny from jittery markets – were voting on European leaders’ decision in July to increase the effective lending capacity of the fund to €440bn and give it new powers, such as buying the bonds of shaky countries or lending money to governments before they get into a full-blown crisis.

Though Mrs Merkel described the euro ahead of the vote as “our common future” and said approving the beefed-up bailout fund was “of the very, very greatest significance,” discussions went deep into the night on Wednesday, in an attempt to win over dissenting members of her governing coalition.

It was not immediately clear whether her coalition had been able to pass the measure on the strength of its own votes alone.

Opposition leaders said that if Mrs Merkel’s coalition has to rely on their votes, it would be a sign that her strife-prone and increasingly unpopular government is finished.

On Wednesday, Finland voted in favour of expanding the fund’s powers despite earlier threats to pull out of a rescue plan for Greece.

The fund expansion has to be ratified by all 17 eurozone nations to take force.

Germany’s upper house of parliament is expected to pass the measure on Friday.