German lawmakers approve new Greek bailout
Tuesday, February 28, 2012
BERLIN (AP) — The German parliament approved a second, €130 billion ($173 billion) loan package for Greece on Monday after Chancellor Angela Merkel warned lawmakers that it would be irresponsible to abandon the country to bankruptcy.
Although the motion was always expected to be easily approved — the final tally Monday was 496-90 with five abstentions — the idea of bailing out Greece has remained very unpopular in Germany, Europe's biggest economy, among the public and many politicians.
"The road that lies in front of Greece is long and truly not without risk," Merkel told lawmakers before the vote. "That also goes for the success of the new program — no one can give a 100 percent guarantee of success."
Earlier Monday, the mass-circulation Bild daily, which has always taken a very hard line on Greece, plastered the word "STOP!" over its front page. Its message to lawmakers was: "Don't keep on going the wrong way."
Merkel, however, said it would be irresponsible to risk a Greek bankruptcy.
She acknowledged that some people ask "whether Greece isn't a bottomless pit, a hopeless case, whether it wouldn't be better for all if Greece reintroduced the drachma."
But she insisted that "the opportunities outweigh the risks of turning away from Greece now — I believe these risks are incalculable and therefore irresponsible."
"As chancellor of Germany, I should and sometimes must take risks, but I cannot embark on adventures," Merkel said.
Ratings agency Standard & Poor's late Monday downgraded Greece's credit rating to "selective default" because of steps the country took last week to force its bond holders to accept steep losses.
The rescue package is Greece's second in less than two years and also involves private-sector investors accepting total losses of more than 70 percent on the bonds they hold, along with tough new austerity measures.
Greece has been surviving since May 2010 on an initial €110 billion ($148 billion) package of rescue loans from other eurozone countries and the International Monetary Fund.
But more than two years of harsh austerity implemented to secure the rescue funds have left the economy in freefall, with businesses closing in the tens of thousands and unemployment at a record high 21 percent in November.
It isn't yet clear exactly what Germany's share of the new bailout will be, and the IMF's input this time has yet to be determined. But Merkel said "it is indispensable for the German government that the IMF continue to make a significant contribution and provide its experience and expertise."
Several non-European members of the IMF, such as the U.S., are reluctant to boost the IMF's resources for troubled eurozone nations, saying the region's bailout funds should be increased in size first.
The need to strengthen the bailout funds was heightened on Monday, when S&P lowered its credit outlook for the current fund, the European Financial Stability Facility, to negative.
It had already downgraded the EFSF in January after key contributors France and Austria were stripped of their top ratings. But S&P noted Germany did not appear ready to make up for the fund's lost creditworthiness by offering it new support.
S&P said the EFSF's rating will therefore track those of France and Austria — AA+ with a negative outlook.
A high credit rating is important for the bailout funds — and the European governments paying into them — because it makes it cheaper to raise money from investors.
The €440 billion ($589 billion) EFSF will be succeeded by the permanent €500 billion ($671 billion) European Stability Mechanism, or ESM, in July. Some experts have suggested that rather than boosting one or the other, the two funds' resources could be combined.
Merkel is nevertheless holding out against making a quick decision.
"The government currently sees no need for a debate on increasing the capacity" of the ESM and the existing interim bailout fund, she said Monday.
She underlined Germany's willingness to speed up its planned payments of capital into the ESM, saying Berlin could pay in the first half — €11 billion ($14.8 billion) — this year and the rest next year.
German officials have been noncommittal on rolling the remnants of the EFSF into the ESM, pointing to an existing agreement to review the ESM's size by the end of March.
Merkel insisted that ending the crisis will be a gradual, step-by-step process that will "require years" to complete.
"It was always Germany and the German government that warned again and again the illusion of fast and simple solutions," she said. "We continue to warn against that."
Opposition Social Democrat Peer Steinbrueck shot back that "this strategy of buying time has failed because times have got worse."
Underlining unease in Merkel's center-right coalition, the weekly Der Spiegel on Sunday quoted Interior Minister Hans-Peter Friedrich as arguing that Greece would have better chances of "regenerating and becoming more competitive" outside the 17-nation eurozone.
Friedrich said Monday he was backing the second bailout and insisted he had only been talking about "what alternatives there are if the possibility of making Greece competitive inside the euro were to fail."
But a lawmaker with Merkel's Christian Democrats who has rebelled in previous debt crisis votes was unapologetic about doing so again.
"I can't go along with this because I think it is economically wrong (and) it is the opposite of what we promised people when the euro was introduced," Klaus-Peter Willsch told Parliament.
Of the yes votes, 304 came from Merkel's coalition — enough on Monday's turnout for a simple majority without opposition help.
Several coalition lawmakers were sick, while 17 voted against and 3 abstained. The yes votes fell short of a majority of all members, 311 — a figure that would only formally have mattered in a confidence vote but opposition lawmakers have played up as a measure of the government's strength.
The parliaments of wealthy Finland and the Netherlands, where skepticism for bailouts also is high, are to debate the package this week. However, it isn't expected to face problems in either country.
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