Germany Approves Expansion of Euro Bailout Fund

Germany Approves Expansion of Euro Bailout Fund

The German Parliament approved the expansion of the bailout fund for heavily indebted European countries Thursday, the most important step in a tortuous process that has rattled markets and raised long-term doubts about the ability of governments to react to the expanding debt crisis.

The vote in Germany, Europe’s largest economy and the only country with the fiscal wherewithal to pull fellow countries in the euro currency zone out of trouble, moved the struggling rescue forward. But analysts said it likely would offer only momentary relief rather than anything like a permanent solution.

And for Angela Merkel, Germany’s chancellor, the victory merely provided breathing room after a divisive debate within her own parliamentary bloc that has weakened her grip on power at a critical moment. Opposition politicians argue that the vocal opposition within her ranks meant that Mrs. Merkel had lost control of her coalition and needed to dissolve the government.

Read More Here from the NYT

Polls show 75% of Germans disapprove of more bailouts

Even more telling is the increasing isolation sentiment in Germany. Polls show shows three-quarters of Germans are against the expanded European rescue fund that's subject to Thursday's vote. So, who is it that politicians represent?

The Wall Street Journal reports Germans Reconsider Ties to Europe

When German lawmakers vote Thursday on whether to put more money into Europe's bailout fund—a step many investors see as essential to prevent a market panic—several conservative deputies, including Wolfgang Bosbach, a prominent champion of European integration, are expected to vote "no." Mr. Bosbach, a high-ranking conservative in Ms. Merkel's Christian Democratic Union, has recently become an outspoken critic of the bailout strategy.

"The first medicine didn't work, and now we are simply doubling the dose," said the lanky Mr. Bosbach of the Greek debt crisis. "My fear is that when the big bang happens, it won't just be us who will have to pay but generations hereafter."

The lawmaker rebellion underscores a broader shift among Germans about their nation's role in Europe since the crisis erupted nearly two years ago. While the Thursday vote is expected to pass, and a vast majority of Germans continue to feel a strong, historical commitment to Europe, with a common currency as its anchor, many have grown doubtful of whether it's worth the ever-growing cost of saving the euro.

A poll for national German broadcaster ZDF earlier this month shows three-quarters of Germans are against the expanded European rescue fund that's subject to Thursday's vote.

The measures before German parliament today would nearly double the main euro-zone's bailout fund's lending capacity to €440 billion ($595 billion) and allow the fund to buy sovereign bonds in the open market.

Germany's contribution to the new, expanded rescue loan package is €211 billion, still less than half the €500 billion it pledged to bail out its banks in 2008. But many see the European Central Bank's moves to buy billions of euros in low-grade government bonds of southern European countries as another sign that European institutions are slipping away from them.

Even more unpalatable is the prospect of making the euro zone collectively liable for its members' debts, as a growing chorus of European officials have recently urged. Many argue so-called euro bonds, which Ms. Merkel has steadfastly opposed, are the bulwark to relieve financial pressure on debt-ridden members and underpin the euro zone's full fiscal union.

But to Germans, it would mean relinquishing their hard-won low borrowing rates to pay for the largess of more free-wheeling members.

"Ultimately the euro-bond issue will come to a head, and Ms. Merkel will have an impossible dilemma," says one senior German coalition lawmaker. "If she goes back to the German people with [euro bonds], she is out. If she doesn't, she will be a very lonely person in Europe."

This will probably be the end for Merkel. She is taking a stance 75% of the nation does not agree with, and that stance is guaranteed not to work.

Greece is going to need more than anyone has to give. Time and more bailouts will not improve this situation, they are just spoon feeding Greece to death.