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Relief in EU: German parliament approved Euro rescue fund and fiscal pact

Saturday, June 30th 2012 - 05:25 UTC
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A happy day for Chancellor Merkel…and for Spain and Italy A happy day for Chancellor Merkel…and for Spain and Italy

As expected, more than two-thirds of the lawmakers in Germany's parliament moved on Friday to approve the permanent Euro rescue fund, the European Stability Mechanism, and a fiscal pact long championed by Chancellor Angela Merkel.

However, the treaties still face a review by the country's highest court before they can be ratified.

Late Friday evening, Germany lawmakers -- including politicians from two opposition parties -- approved two key pillars of Merkel’s efforts to bring calm to the long-raging euro storm.

In the first vote, members of the Bundestag approved the fiscal pact, which commits Germany to stricter budgetary rules, such as reducing its budget deficits to less than 0.5% of GDP beginning in 2014. Lawmakers voted 491-111, with six abstentions, in favour of the pact, a pet project of Merkel's that was agreed on by 25 of the EU's 27 member states at a summit in January. A two-thirds majority, or 414 votes, was needed for the measure's passage because it involves an internationally binding commitment to limit Germany's deficit.

In the second ballot, lawmakers voted 493-106, with five abstentions, in favour of the European Stability Mechanism (ESM), the €700 billion permanent bailout fund.

The Bundesrat, Germany's upper legislative chamber, which represents the interests of the states, is expected to approve both measures later in the evening.

The votes were held despite calls earlier in the day from politicians both inside and outside Merkel's centre-right government to delay them until lawmakers had time to consider what effects the deal concluded at the Brussels summit would have on the ESM.

Less than 24 hours earlier, Merkel had made some tough and unexpected concessions after a marathon 15 hours of talks at an EU summit in Brussels lasting well into Friday morning. The Euro-zone's 17 member countries agreed to ease the conditions for receiving aid from the ESM bailout fund. According to the agreements, Euro-zone member-states that fulfil the budgetary rules laid down by the European Commission can now receive aid without agreeing to tough austerity measures and strict oversight by the troika: European Commission, the European Central Bank and the IMF will no longer apply.

What's more, the bailout fund will be allowed to pump money directly into struggling European banks rather than pushing countries deeper into debt by loaning the money to governments themselves in exchange for austerity commitments. However, this can only happen after a single European banking supervision mechanism -- under the auspices of the ECB -- has been established, which could take some time.

Prior to the summit, Merkel had vocally opposed both steps, preferring to stick to the rules that had already been hammered out and that guaranteed strict oversight, particularly by the IMF.

As a result, Merkel was sharply criticized Friday for her concessions, with many commentators accusing her of having caved in to demands of southern European countries, particularly Spain and Italy. For example, the mass-circulation tabloid Bild ran a headline Friday saying “Merkel Buckles,” and Carsten Schneider, a budgetary expert with the centre-left Social Democratic Party (SPD), wrote on Twitter that Merkel's government had made “a 180-degree turnaround.” Likewise, Frank Schäffler, a member of the business-friendly Free Democratic Party (FDP), the junior partner in Merkel's coalition government, said: “The ink isn't even dry and the substance of the ESM treaty is already being changed.”

Italian Prime Minister Mario Monti and Spanish Prime Minister Mariano Rajoy were able to secure the concessions by threatening to torpedo the €120 billion European Union growth pact originally proposed by French President François Hollande, who had promised voters during his recent presidential campaign to secure a growth component to complement Merkel's fiscal pact. Even if experts doubt whether the growth pact will have much of an effect, Merkel had promised the successful passage of the pact to the opposition back home, as well as support for a financial transaction tax, in exchange for their support in ratifying the ESM and the fiscal pact in Friday's votes.

However, in a speech delivered to parliament directly before the vote, Merkel defended her concessions -- which parliament will vote on at a later date -- as a “sensible decision.” She stressed that growth and employment were key for the future of the European Union, and that parliament's approval of the ESM and the fiscal pact would be “a signal for Europe” and would send “a signal of unity within and without.”

Despite parliamentary approval of the ESM and the fiscal pact, it is not expected that the treaties will be ratified -- at least for a few weeks -- following a request by Germany's highest court to the country's president, Joachim Gauck, asking him not to sign them into law until it can complete a legal review.

At least 12,000 complaints are expected to be filed with the Federal Constitutional Court regarding the ESM and the fiscal pact. As a result of the legal complications, the ESM will not go into effect on July 1, as planned.

Categories: Economy, Politics, International.

Top Comments

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  • briton

    Relief in EU
    But not as we know it,
    We know what you want,
    And you may well get most of it,

    But we hope to get rid of your jewel in the crown [mr Cameron] long before he sits on your head .

    Jun 30th, 2012 - 08:51 pm 0
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