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The World from Berlin: 'Europe Can Breathe Easier' after Crunch Vote

On Thursday, Chancellor Angela Merkel showed once again that she could deliver the goods when she achieved a convincing parliamentary majority in a crucial vote on expanding the euro rescue fund. German commentators say the vote is a step in the right direction but warn that further obstacles lie ahead.

Chancellor Angela Merkel (seen here during Thursday's Bundestag debate on the EFSF expansion) must be relieved that the bill passed. Zoom
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Chancellor Angela Merkel (seen here during Thursday's Bundestag debate on the EFSF expansion) must be relieved that the bill passed.

It was one of the most anticipated parliamentary votes of the year. If it had gone wrong, it could have cost Angela Merkel her chancellorship.

In the end, Merkel managed to pull it off -- as she has so often in the past. The Bundestag passed the expansion of the euro backstop fund, the EFSF, with 523 votes in favor, 85 against and three abstentions.

The result meant that Merkel could breathe a sigh of relief. There had been concern that renegades within her center-right coalition could force the chancellor to rely on opposition votes to pass the legislation. Had that happened, her power would have been severely curtailed.

In the end, however, 315 parliamentarians from Merkel's conservatives and from her junior coalition partners, the Free Democrats, voted in favor of the EFSF expansion. If the total had been below the so-called "chancellor's majority" of 311, it would have meant that Merkel was reliant on opposition votes, indicating she could no longer rely on the support of her own coalition.

On Friday, the Bundesrat, Germany's upper legislative chamber, also approved the EFSF expansion.

Further Hurdles Ahead

The relief for Merkel may have been considerable, but the financial markets appeared less impressed by the Bundestag vote. On Friday morning, the key German stock market index, the DAX, was down again by more than 2.5 percent, after jumping over 1 percent on Thursday in reaction to the yes vote.

In any case, one hurdle may have been passed, but the EFSF is still far from being a done deal. There are fears that the Slovaks, who have yet to vote on the expansion, could still derail the reforms. One of the junior partners in the Slovak coalition government has refused to back the expansion of the EFSF. All the 17 national parliaments in the euro zone need to approve the reforms for them to go into effect. So far, 13 members have passed the reforms, with Austria voting on Friday.

But the nail-biting is not over yet in Germany either. The Bundestag will soon have to vote again on approving the European Stability Mechanism (ESM), the permanent stability fund which is set to succeed the EFSF in 2013. That vote, which is expected to take place in the first quarter of 2012, again poses the potential of splitting Merkel's government. Before the Bundestag votes on the ESM, the FDP intends to poll its roughly 66,000 members on the issue. If one-third of party members take part in the poll and the majority votes against the ESM, this will become the party's official position -- which has the potential to bring down the German government.

On Friday, German commentators take a look at Merkel's narrow escape.

The Financial Times Deutschland writes:

"She can still do it. Not many had trusted Angela Merkel to be able to rally her own people behind her. But the head of government was able to achieve the chancellor's majority for the most important vote on the euro rescue package EFSF, and did not have to rely on the opposition. Europe can breathe easier…"

"Merkel cannot afford to let the criticism (from within her coalition) continue until just before the crucial moment. She needs to take a clear stance on the following issues: How can Greece escape its vicious cycle of austerity measures and economic decline? Is Germany prepared to promise even higher guarantees? How can the creditors play a bigger role in the rescue of the euro? As long as she doesn't answer these questions … then she will have to worry about her majority (in parliament). And Europe will tremble with her."

Center-right daily Frankfurter Allgemeine Zeitung writes:

"The enlarged EFSF is, in the best case, now large enough to assist Greece, Portugal and Ireland. As a result, parliamentarians have already begun talking about how to access even greater sums of money. After all, the EFSF will be authorized to purchase sovereign bonds from Italy, Spain and other euro-zone countries and is supposed to help prop up European banks. Such a sweeping mandate could cost several trillion euros. Merely refinancing the debt of Italy and Spain would require €2.6 trillion ($3.5 trillion) in the medium term."

"Officials are discussing the possibility of granting the EFSF a bank license. That would be much, much worse than introducing euro bonds. How would a civil servant in Luxembourg be able to deny financing requests from French or Italian leaders? Why should Spain tighten its belt if Madrid no longer needs to sell its sovereign bonds on the open market, given that the fund can transform debt into money by tapping into limitless credit lines at the ECB? The monetization of state debt would turn the common currency zone into a club responsible for each others' debt -- without parliamentary control."

"Efforts to save the euro thus far with ever-larger guarantees and funds prolong the debt crisis, but they do nothing to solve it. For some states, a new beginning can only be achieved by a deep debt haircut. That, though, presupposes that southern European banks as well as their counterparts in France and Germany have enough capital to shoulder the losses. Only by recapitalizing European financial institutions can the danger of contagion be combated and the ability of markets to blackmail European governments be reduced. That is the only way to solve the state debt crisis. This path is much cheaper for taxpayers than that of the euro backstop fund."

The business daily Handelsblatt writes:

"Angela Merkel did it. She achieved a 'chancellor's majority' for the expansion of the rescue fund EFSF, and thereby proved all the skeptics wrong. But that is just a snapshot in time. While the CDU leaders succeeded in applying significant pressure to potential deviants, it only bought them a little breathing room…The biggest obstacle comes in a few months' time, when the coalition has to bring the permanent rescue fund, the ESM, to the Bundestag for a vote. If the FDP's poll among its members show that the majority oppose the ESM, then there could be a schism in the FDP's parliamentary group, and Merkel could lose her coalition partner.

"The real winner of the day was not the coalition, but the parliament. The Bundestag forced a real concession from the executive branch. Starting immediately, the government must first get the approval of the Bundestag -- or, should a delay pose risks, of the Bundestag's budget committee -- before agreeing to allocate more money to the EFSF. This is something new for Germany's European policy. Until now, the government conducted negotiations on its own, and the Bundestag only had the power to vote on issues that were already decided."

The center-left Süddeutsche Zeitung writes:

"The news went around the world that Germany, the most important country in Europe, will continue to support the euro rescue. If it is true that, in this crisis, clarity counts more than anything, then those in government headquarters, central banks, and financial institutions must be breathing a sigh of relief. The Bundestag in Berlin has spoken. But unfortunately, this sigh of relief isn't taking place, because, while the German decision is certainly helpful in the bid to solve the major crisis, it is not nearly enough."

"The markets would prefer more and more money, and ever-increasing loans, but in the end, the money will not have much value anymore. The first serious experts are already talking of an impending need for currency reform, a traumatic idea for the Germans."

"Countries that live beyond their means should not be allowed to expect more money. Banks who make bad deals must be allowed to go bankrupt, without putting the whole system in danger. Creating the necessary structures to allow that is the task of politicians. What's needed are clear rules for national bankruptcies. It is also necessary to force banks to accumulate, as quickly as possible, enough capital so that they can survive a debt restructuring by, for example, Greece."

The conservative daily Die Welt writes:

"Europe is, without a doubt, in danger. Not because the citizens of Europe don't like the EU, but because they don't understand it. Because they can't even recognize it. Because no one explains what it's good for, what form it should take in the future and how to get there, step by step. The powers-that-be only say that the European Union must exist -- there is no alternative. They also warn that talking about the dangers only causes them to grow -- and so it's better to keep quiet."

"It doesn't seem to bother anyone that the EU is using its own private language. ... Nobody has a problem with the fact that the urgently needed rescue fund was given the clunky name of the 'European Financial Stability Facility.' Doesn't anyone realize that no one understands what's going on, that no one can even picture (the EFSF) in their minds? And doesn't anyone realize that these words don't sound like something worth saving, but something dangerous that would be better avoided?"

"Democracy can have many faces -- even an absolutist one. Europe's democracies are taking on such features right now. Because so many leaders regard the European project as so titanic, they have abandoned all hope of being able to explain it to the general public. Leaders are ignoring their citizens because, hey, they're not going to understand it anyway. ... This attitude might buy time, but it gambles away Europe's reputation, its future and its legitimacy."

-- SPIEGEL staff

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