Merkel set to win Spanish aid vote despite rebels

Reuters News
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Posted: Jul 18, 2012 6:09 PM
Merkel set to win Spanish aid vote despite rebels

By Annika Breidthardt

BERLIN (Reuters) - Chancellor Angela Merkel's authority within her centre-right coalition was at stake on Thursday when uneasy German lawmakers vote on Berlin's contribution to a euro zone aid package for Spain's ailing banks.

Merkel can count on broad centre-left opposition support to push the decision through the Bundestag, the lower house of parliament, whose members were recalled to rainy Berlin from their summer recess especially for this one-day session.

But with each vote on the euro zone's debt crisis, concern about the rising costs to Germany has hardened, prompting a growing number of coalition lawmakers to rebel and cramping the government's room for maneuver in European negotiations.

Merkel only needs a simple majority in this vote, expected around 1500 GMT, but she would prefer not to rely on opposition votes for such an important decision.

In a more far-reaching legislative vote last month on the permanent rescue scheme, the European Stability Mechanism (ESM), 26 members of Merkel's coalition of Christian Democrats, their Bavarian sister party and the Free Democrats voted "no".

A bigger revolt on Thursday would be embarrassing for her and could tie her hands on future policy.

"I cannot rule out the possibility that some colleagues will not back the measures but my impression is that the numbers have not increased," said Stefan Mueller of the Bavarian Christian Social Union. "It is clear that the question of liability was a concern for people and that this has been cleared up."

Some lawmakers are concerned that Spanish banks, not the Spanish state, would be liable for the funds once it is transferred to the ESM from the current temporary bailout fund, increasing risks for German and other euro zone taxpayers.

Frank Schaeffler, a backbencher from the Free Democrats who has been particularly outspoken against Germany's crisis policies, said Spain only had one systemically important bank and the euro zone should not bail out Madrid's financial sector.

"It's a black hole that will soak up taxpayers' money without limits," he told Westdeutsche Allgemeine Zeitung.

Others, such as Lars Lindemann, another FDP backbencher who plans to vote against the bill, do not see the urgency of any aid for Spain and would rather vote after a fuller debate.

Spain applied for a euro zone bailout late last month as the state of its banking sector, laden with bad debts, deteriorated rapidly. On Thursday, Bankinter posted first half net profit down more than 77 percent and said it had written down 275.2 million euros against deteriorating real estate assets.

The Spanish government had to offer a euro lifetime record interest rate to sell five-year bonds, highlighting Madrid's precarious situation and pushing 10-year bond yields back above the 7 percent level seen as unsustainable in the long term.

Germany, Europe's largest economy, will guarantee almost 30 percent of the new euro zone aid package, whose total value may reach up to 100 billion euros ($123 billion).

LIABILITY

Critics of the Spanish rescue insist there must be waterproof guarantees that national governments would be liable for emergency loans granted to banks.

Under the temporary European Financial Stability Facility (EFSF) rescue fund, the vehicle initially used for Spanish aid, the Spanish state will indeed be liable.

The same is true for the ESM, which will take over once it is operational, but that fund is earmarked for major changes, which could eventually see it recapitalizing banks directly.

Germany and other strong economies want adequate controls in place before agreeing to the changes, including euro zone banking supervision.

Finance Minister Wolfgang Schaeuble, who will open Thursday's debate at 1200 GMT, tried to take the wind out of the rebels' sails by reminding them that the Bundestag would need to vote on such changes before they could take effect.

"The impression that has arisen through unclear and irresponsible comments from some individuals that we are now deciding on direct aid to banks without state liability is simply absurd. It is completely unfounded," he told a newspaper.

Schaeuble needs parliamentary approval before he can commit Germany to the Spanish bailout in a conference call of euro zone finance ministers set for Friday.

Merkel is under heavy pressure from some EU partners to move more quickly to stem the crisis but must also heed limits set by German public opinion, parliament and the Constitutional Court, which has told the government to give lawmakers more say.

The court has delayed the entry into force of the ESM, the permanent rescue fund, pending a detailed legal review of whether it violates the German constitution. The court is due to deliver its verdict only on September 12.

Merkel - whose tough stance on the euro crisis has boosted her popularity ahead of next year's federal election - has said she is not aiming on Thursday for a symbolically important "chancellor majority", which would require the support of 311 of her coalition's 330 MPs in the 620-seat Bundestag.

In June, the 26 MPs from Merkel's coalition who voted against the ESM bill was an increase on the 17 coalition MPs who rebelled against the second Greek bailout package in February.

An estimated 20 of 620 MPs will likely not attend Thursday's special session.

($1 = 0.8154 euros)

(Additional reporting by Madeline Chambers; Writing by Annika Breidthardt and Gareth Jones, Editing by Paul Taylor)