German parliament set to back Merkel on euro fund

[October 26, 2011]  BERLIN (AP) -- Chancellor Angela Merkel looks set to receive wide German parliamentary backing for plans to increase the eurozone rescue fund's firepower before she heads to a high-stakes European summit on Wednesday.

Following a speech by the chancellor, parliament's lower house is to vote on a resolution thrashed out by Merkel's governing coalition and the main opposition parties.

The EU summit will consider plans to boost the euro440 billion ($600 billion) bailout fund by offering government bond buyers insurance against possible losses and attracting capital from private investors and sovereign wealth funds.

Government and opposition leaders have stressed that Germany's liability will remain unchanged, with Berlin still guaranteeing loans to the tune of up to euro211 billion and no more.

However, the parliamentary resolution says that the fund, the so-called European Financial Stability Facility, "should be used as efficiently as possible to support the stability of the eurozone."

It states that lawmakers are aware that "the risk of losses can change" as a result of leveraging the EFSF to increase its firepower.

The resolution also underlines the German parliament's expectations that, once the changes are implemented, the European Central Bank will no longer need to buy government bonds, as it has since last year. It calls on the government to preserve the ECB's independence.

With the 17-nation eurozone's politicians struggling to agree on ways to calm the debt crisis, the ECB has been taking on the role of firefighter by buying the bonds of financially weakened governments on the open market.

That keeps the bond prices up and the interest rates down, allowing the countries to borrow on financial markets at lower rates than they otherwise could.

The German resolution also urges the government to ensure that there is a quick decision on European proposals to introduce a tax on financial transactions.

Merkel's party decided Monday to hold a full parliamentary vote on the eurozone fund changes, although it would have been enough for parliament's budget committee to approve them. The resolution was drawn up by Merkel's center-right coalition and two of the three opposition parties.

Parliament speaker Norbert Lammert said "the significance can't be overstated" of sending Merkel to Brussels with wide support.

Germany's highest court ruled last month that parliament must vet future rescue efforts, and lawmakers from both government and opposition also were keen to secure a greater say -- a potentially cumbersome demand in this fast-moving crisis.

"So far, there has not been a single decision that has been delayed by parliament," Lammert insisted on ARD television.

[Associated Press; By GEIR MOULSON]

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