Thu September 29, 2011
German Lawmakers Set To Expand Euro Bailout Fund
The German parliament is expected to approve a plan Thursday that would expand the power of a European bailout fund for troubled countries that use the euro.
For Chancellor Angela Merkel, it's considered one of the biggest parliamentary votes of her career.
But before this bailout move has been approved by all the necessary European parliaments, many economists already feel the measure may not be sufficient to calm markets and stem a new global downturn.
Peter Alitmaier, the chief parliamentary whip of Merkel's ruling center-right Christian Democratic Union, says the German vote will send a strong message to the markets that Europe is taking decisive action to save Greece and preserve the 17 countries of the euro zone.
But already there's talk that more action will be required. Altmaier, however, is ruling out other measures, at least for now.
"All other further decisions will be taken on a step-by-step basis," he said. "We will tackle the next problems as they come, but not now."
Financial Community Seeking Strong Action
The financial world has strongly criticized Merkel and fellow European leaders for what's been described as cautious, reactive leadership during this crisis.
Most economists think the current rescue fund of euro440 billion — even with these expand powers — is simply not big enough or powerful enough prevent debt turmoil from spreading across Europe and hammering the banking sector.
Senior officials in the United States, Japan and elsewhere are urging Germany and France to move more decisively. The Americans and others are urging Europe to create a safety net big enough to prevent Greece's debt woes from sparking a new global downturn.
Harvard economics professor and author Ken Rogoff says the risks are real and a renewed sense of urgency is certainly needed.
"The risks now are approaching what we had in 2008, and particularly in Europe, urgent action is needed," he said. "They seem to be just waiting for things to unfold, for a disorderly default to unfold and a cascade of bank panics. I'm afraid this is a very nervous moment. And that needs to be communicated. Not just to leaders but to the public — especially in Germany."
Some Germans Have Mixed Feelings
Germans remain strongly supportive of European integration. But they worry that the end game involves the German taxpayer footing bill for its fiscally imprudent neighbors.
"I'm really of two minds," said Martin Wortmann, a 68-year-old retiree from northwest Germany who as strolling with his wife near the historic Reichstag on a sun-filled Berlin afternoon. "That it has come this far is dreadful. We should have dealt with this much sooner. The situation is now so out of hand that we're being held ransom by the markets and are forced to do something. On the other hand, Germany is partly to blame with its excessive trade imbalance, and that is the heart of the problem, the imbalance within this monetary union among individual countries."
The libertarian, pro-business Free Democrats or FDP are part of Chancellor Merkel's governing coalition. Yet they have seen their popularity plummet to historic lows, in part, because of stances taken during the debt crisis that many voters have seen as anti-Europe.
Some FDP officials have called for Greece to default and leave the eurozone. Free Democrat MP, Frank Schaeffler says he and other FDP "rebels" are realists, while Chancellor Merkel, he says, "is a euro romantic."
"Greece has no chance of getting out of this crisis if it stays within the euro zone," he said. "The markets know this, the news is all over town. It would be in the interest of everyone – both Greece and the rest of Europe – if Greece were to temporarily leave the euro zone, re-introduce the dracma, devaluate it. And then we can talk about how to support their banking system so as not to create a domino effect."