German parliament putting in more money to save the euro

Germany kept alive hopes the euro can survive the debt crisis when lawmakers voted overwhelmingly in favour of expanding the powers of the eurozone's bailout fund.

Yesterday’s vote strengthened Angela Merkel’s centre-Right coalition, which had struggled to win support from a group of rebellious members, and could bolster her ability to negotiate new European crisis measures.

While many investors and experts believe new steps will be required in Europe, such as letting Greece write off more of its debt pile, Germany’s approval of the fund’s new powers and scope was necessary to avoid a new bout of massive market turmoil.

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Michael Kemmer, head of Germany’s Bank Federation, said: “The support of the Bundestag is an important step for stabilising the eurozone. With that, they have set a course that leads out of the debt crisis.”

The 440bn euro (£384bn) fund will be able to buy government bonds and lend money to banks and governments before they are in a full-blown crisis, making Europe’s response to market jitters more rapid and pre-emptive.

Germany, which pays the lion's share of European bailouts, became the 13th member of the eurozone to support the expansion of the rescue fund, the so-called European Financial Stability Facility, or EFSF. Cyprus also passed the proposed expansion yesterday.

Austria’s parliament is widely expected to pass the measure today, the same day Germany's upper house of parliament is set to finalise its vote, while the Netherlands is expected to approve it in the first week of October.

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The biggest remaining hurdle is the final country to vote – Slovakia – where the government will not have enough support to pass it if the leader of the junior coalition Freedom and Solidarity party follows through with threats to vote against the expansion. Its parliament is to vote later in October.

In Berlin, 523 lawmakers in parliament, the Bundestag, voted in favour of expanding German participation to guarantee loans of up to 211bn euro (£184bn), compared with 123bn euro (£107 bn) so far. Eighty-five voted against it and three abstained.

Markets appeared calmer following weeks of turbulence triggered by uncertainty over Germany's position on the fund. The euro also traded slightly higher.

The lingering problem, however, is that investors are resigned to the fact that Greece will have to default – imposing tougher losses on its bondholders.

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Greece was saved from default by an initial 110bn euro (£96.5bn) bailout in May last year before the EFSF was established to help any other countries in trouble.

A planned second rescue package for Greece this year includes a voluntary participation by private bondholders, who agreed to write off about 20 per cent on their Greek debt holdings.

The larger fund is an attempt to convince markets that Europe can contain any further euro crises, but already speculation is growing that a fund as much as four times the sum – two trillion euros – may be needed to calm fears that the crisis is out of control.

Meanwhile, Deputy Prime Minister Nick Clegg used a speech a support calls for further integration of the 17 eurozone countries.

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Addressing the EU Eastern Partnership summit in Warsaw, the Sheffield Hallam MP insisted a divided and weaker EU was in no one’s interest.

Change leading to fragmentation would be a disaster, he said.

His remarks were out of line with those of Foreign Secretary William Hague, MP for Richmond, who on Wednesday repeated the need for the UK to take back powers from Europe.

Mr Hague described the single currency as a “historical monument to collective folly”.

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