Schaeuble Removes States’ Fiscal Compact Veto With Flood Fund

German Finance Minister Wolfgang Schaeuble overcame resistance in the opposition-controlled upper house of parliament to legislation limiting the budget deficit by offering states favorable flood-aid terms.

The federal government will sell as much as 8 billion euros ($10.7 billion) of bonds to establish the recovery fund, with states repaying their share of about 3.25 billion euros over 20 years, the ministry said today in an e-mailed statement.

“I am delighted that we’ve been able to find a convincing solution today,” Schaeuble said in the statement. It is “positive” that the states agreed to approve the fiscal compact as it “finalizes a major German concern.”

The blocking of the legislation anchoring the fiscal compact in German law was an embarrassment for Chancellor Angela Merkel, who pushed for the stricter budget rules at European level, winning agreement from 25 of the European Union’s 27 members in late 2011.

Schaeuble also agreed that the federal government will bear 1.5 billion euros in costs for rebuilding destroyed federal infrastructure without asking for state contributions. He agreed in addition to maintain payments to the states related to the unbundling of federal-state responsibilities at current levels until 2019, giving up a previous demand to reduce them.

Swollen rivers including the Elbe and Danube forced tens of thousands of German residents to leave their homes, causing about 12 billion euros in damage, according to Fitch Ratings. Allianz SE, Europe’s biggest insurer, said preliminary estimates show its net losses from the flood claims in Germany, Austria and part of Central Europe are 350 million euros.

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