In a closely watched vote today, Germany’s parliament approved an expansion of the euro rescue fund, giving some reassurance to financial markets that the eurozone crisis might be brought under control.
But the vote means more for Chancellor Angela Merkel – it is a vote of confidence and a test of her authority.
For weeks Mrs. Merkel lobbied intensely to win over skeptics from the two parties that make up her governing coalition, the conservative Christian Democrats and the liberal Free Democrats.
It was likely that Merkel would have won the vote anyway, because almost the entire opposition in parliament was in favor of the bill. But relying on the votes of the Social Democrats and the Greens would have been considered a sign of a weakened government.
In the end, the support from her own camp came through.
“This is certainly a victory for her,” says Arthur Fischer, head of the Berlin stock exchange. “It is a key vote, but it is one of many. The German constitutional court has, just a few weeks ago, made it clear that parliament needs to be involved in all budgetary matters. So the markets will take some joy out of this vote today, but she’s not out of the woods yet.”
Indeed, Merkel’s critics have not been silenced by the defeat.
“All the bailout funds so far have done nothing to solve the crisis,” says Frank Schäffler, a member of parliament for the governing Free Democrats, the junior partner in the coalition. “On the contrary, they act as a fire accelerant, making things worse. No bailout will save a country like Greece. It’s throwing good money after bad.”
Even though Mr. Schäffler represents a very small minority in parliament, he has a large part of the German electorate behind him. In a recent survey by the Forsa polling institute 80 percent of Germans said they would not be prepared to make a personal contribution to help the Greek economy. And 37 percent even said they thought Greece should be kicked out of the eurozone.
“I know people are concerned, scared even,” says Ursula von der Leyen, a labor minister in Merkel’s cabinet. “But if you ask them, do you want the Deutschmark back, or do you want to keep the euro, the overwhelming majority will say, they want the euro. They want more Europe, not less.”
Europe’s leaders are investing a lot of both political and financial capital. The expanded bailout fund will have a guarantee sum of 780 billion euros ($1.1 trillion), as opposed to 440 billion euros in the current fund. It will also have a wider remit, being able to buy bonds not just in the secondary market, but from governments directly. It can also hand out loans to recapitalize banks.
But that’s not all. Perhaps confirming Schäffler’s worries, there are more measures in the making. Later this year a second bailout for Greece will need approval, and in 2013 the temporary euro rescue fund, known as EFSF, is to be replaced by a permanent anti-crisis mechanism, called European Stability Mechanism.
Those mean more votes that Merkel will have to survive.