Belfast Telegraph

Germany boosts EU bailout

Markets buoyant as Berlin raises its guarantee to €211bn

Germany’s lower house of parliament has approved controversial plans to expand the scope and scale of the €440bn (£382bn) eurozone bailout fund.

The bill increases Germany's guarantees from €123bn (£106bn) to €211bn (£183bn) — the biggest among eurozone states.

The euro gained on the news and added on 0.7% to $1.3641 following the result of the vote.

A total of 523 members voted in favour, 85 against and there were three abstentions.

While the Bundestag was expected to pass the legislation, backed by the opposition Social Democrats and the Green party, the vote is a crucial one for Chancellor Angela Merkel who was struggling to persuade her own ruling coalition to vote in favour.

She could afford no more than 19 of her coalition MPs to rebel to carry the vote in her own right.

In a trial vote earlier this week 11 members of Ms Merkel's party rejected the legislation.

Stock markets were buoyed by the move which could lead to an increase in the fund to trillions through leveraging or borrowing on the back of it.

Germany’s DAX was up 1.8% just after the US markets opened while France’s CAC and the FTSE gained, although investors remain wary of the lack of detail on how the debt crisis will be solved.

In the US, shares also gained after more positive than expected economic data.

Figures from the US government showed the economy grew by 1.3% in the second quarter.

Meanwhile, the “Troika” — a delegation from the European Commission, the European Central Bank and the International Monetary Fund — has returned to Athens to decide whether the Greek government has made sufficient progress in sorting out its public finances to justify the release of the latest €8bn (£7bn) tranche of EU/IMF bailout funds.

The return of the Troika has been interpreted as a sign that the funds will be forthcoming, but the group will not make a final decision on whether to release the loans, which Athens needs to avoid national bankruptcy, until next month.

Financial markets have perked up in recent days in response to talk of a grand plan to increase the powers of the stability fund.

But investors were rattled yesterday by reports of a division among European policymakers over the scale of the write-downs that should be imposed on Greek creditors.

Eurozone leaders agreed in July that the holders of €340bn (£290bn) of Greek bonds should accept a 21% ‘haircut’ as part of the agreed second bailout for Greece. The mooted plan involves the ECB lending money to the €440bn (£380bn) eurozone stability fund, extending its firepower by up to four times.

Belfast Telegraph