Schaeuble Cites Contagion Risk as German States Vote on EFSF

German Finance Minister Wolfgang Schaeuble said “worryingly high” global debt levels and the risk of a banking crisis mean the expansion of the euro-area’s rescue fund is urgent.

Schaeuble made the warning in a speech to a session of Germany’s upper house of parliament that will vote later today on bigger powers for the 440 billion-euro ($596 billion) backstop for indebted euro countries. The lower house backed the changes yesterday in a victory for Chancellor Angela Merkel.

“The real concern is that the situation on the financial markets, the still worryingly high level of debt in many states -- not only in the euro zone, but also outside the euro zone -- could lead to a crisis in the finance and banking sector, where the danger of contagion is particularly great” Schaeuble said. “It’s urgent that we have these additional instruments at hand very quickly.”

The upper house, which groups delegates from Germany’s 16 state governments, can delay legislation by demanding changes. While Merkel lacks a majority in the chamber, the main opposition parties, the Social Democrats and Greens, back the expansion of the European Financial Stability Facility. The upper house is due to vote at about 1 p.m. Berlin time.

The lower house passed the measure with 523 votes in favor and 85 against, granting the fund powers to buy bonds in secondary markets, enable bank recapitalizations and offer precautionary credit lines. It raises Germany’s guarantees to 211 billion euros from 123 billion euros.

“The worry among our population is huge,” Schaeuble said. “We are moving very quickly from the nervous situation on the financial markets to a significant burden on the national and global economies, including in Europe and the German economy.”

To contact the reporters on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net; Patrick Donahue at pdonahue1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net