Chancellor Angela Merkel invoked Germany’s “historic obligation” to defend the euro and Europe as she urged lawmakers to back a planned increase in the euro-area rescue fund’s capacity to staunch the debt crisis.
Merkel said the financial risk inherent in leveraging the 440 billion-euro ($612 billion) backstop is “acceptable,” and that bondholders must give Greece a bigger break to relieve the debt load at the heart of the turmoil sweeping Europe.
“The world is watching Europe and Germany,” Merkel said in a speech today to the lower house in Berlin, the Bundestag. “It’s watching whether we’re ready and able in the hour of Europe’s deepest crisis since the end of World War II to accept responsibility.”
Merkel was speaking at the start of a debate and vote on the rescue fund before she travels to Brussels for the second crisis summit in four days. As the contagion threatens Italy, European leaders are tightening the screws on Prime Minister Silvio Berlusconi to bring concrete reforms to the meeting. The summit negotiations “won’t be easy,” Merkel said.
The principle goal is to lower Greece’s debt level to 120 percent of gross domestic product by 2020, according to the chancellor.
“That can’t be done unless the private sector bears a considerably higher share of the burden” than the 21 percent cut in Greek debt holding envisaged at a July 21 summit of European leaders, she said.
Merkel’s coalition ensured cross-party support to increase the effectiveness of the European Financial Stability Facility rescue fund after persuading the main opposition Social Democrats and Greens to sign up to a motion that includes a cap on German guarantees.
“The chancellor will travel to Brussels today bolstered by a clear and very broad mandate from the German Bundestag,” Peter Altmaier, the deputy parliamentary leader and chief party whip of Merkel’s Christian Democratic Union, said in an interview on Deutschlandfunk radio.
German backing for the scaled up EFSF is still just one piece in the crisis-fighting jigsaw puzzle being assembled. Agreement is still lacking on how to bolster the fund, reductions in Greece’s debt load and recapitalizing banks.
The 17-nation euro gained 0.1 percent to $1.3937 as of 1:26 p.m. in Berlin after climbing to as much as $1.3960 yesterday, the highest since Sept. 8. German two-year notes rose for a third day. The benchmark Stoxx Europe 600 Index advanced 0.4 percent after swinging between gains and losses.
The crisis summit “is a turning point today because it has the right elements,” Carsten Brzeski, an economist at ING Group in Brussels, said in an interview with Francine Lacqua on Bloomberg Television today. “Nevertheless there is a fatigue on financial markets listening to politicians always coming up with the ultimate, final plan.”
In Italy, la Repubblica newspaper reported that Berlusconi agreed with Umberto Bossi, leader of the Northern League party which holds the key to Berlusconi’s parliamentary majority, to hold early elections in exchange for a deal on revamping pensions, liberalization and bureaucracy. Berlusconi agreed to step down by January and to bring elections forward to March 2012, la Repubblica said.
The Bundestag is scheduled to vote at about 2:15 p.m. as it exercises powers over budgetary matters that it won last month after complaints by coalition lawmakers they were being steamrollered into accepting decisions made in Brussels affecting German finances.
“We’re all in new territory,” Merkel said.
The motion before parliament lays down guidelines for Merkel to take to Brussels, including a cap on German guarantees at the existing level of 211 billion euros and a request that the budget committee or the full chamber be given another vote after leverage models have been worked up. It also “notes” that there is no need for the European Central Bank’s secondary-market bond-buying program to remain in place once the enhanced rescue fund is enacted.
“For us it was a condition that the Bundestag, respecting the central bank’s independence, has a clear position: no more unconditional debt-buying by the ECB,” Carsten Schneider, the Social Democratic Party’s budget spokesman in parliament, told reporters after a budget committee meeting late yesterday.
Merkel’s bloc has 330 seats in the 620-member Bundestag, allowing her to pass legislation with a simple majority of 311 votes with as many as 19 coalition dissenters. With the help of SPD and Green support, she won a Sept. 29 ballot on enhancements to the EFSF by 523 votes in favor to 85 against.
“We need a simple coalition majority,” Klaus-Peter Flosbach, the finance-policy spokesman of Merkel’s Christian Democratic bloc in parliament, said in an e-mailed statement. “I have no doubt that we’ll achieve that.”