Action to rescue euro countries may not save the EU
BERLIN -- Chancellor Angela Merkel won the support of German lawmakers to increase the firepower of eurozone's bailout fund Wednesday and indicated that private investors like banks should take a writedown of at least 50% on their Greek debt holdings.
The leader of Europe's biggest economy headed to a high-stakes summit in Brussels with a strong mandate to seal a deal on Europe's increasingly unmanageable debt crisis after winning a parliamentary vote 503-89, with four abstentions.
Yet uncertainty remains over whether European leaders will be able to nail down a comprehensive plan to solve the debt crisis.
"The world is watching Europe and Germany; it is watching whether we are ready and able, in the hour of Europe's most serious crisis since the end of World War II, to take responsibility," Merkel told parliament before the vote.
Europe has already bailed out three small eurozone members — Greece, Portugal and Ireland — but fears it cannot bail out the troubled economies of Italy and Spain, the third and fourth largest economies in the 17-nation currency bloc. It also knows that the first bailout for Greece was nowhere near big enough to keep the country from defaulting.
Germany's parliament approved a de-facto increase of the $610 billion bailout fund, allowing it to be leveraged to bring its amount to more than $1.4 trillion. This frees Merkel's hand at a summit Wednesday in Brussels to agree to a final deal, one put off at Sunday's summit after already being once delayed.
Even so, European leaders signaled there might be another delay of what was supposed to be, finally, a deal of all deals at the summit of all summits Wednesday. Analysts say they expect nothing different of the plodding EU leaders.
"You have 27 national sovereign governments … and all of them subject to domestic pressures, and they have to dot every I, cross every T," said Ben Tonra, professor of European politics at University College in Dublin. "Getting consensus among 27 is always tough. Plus you have the added nuance of there being the EU core of the eurozone and a growing division between that 17 and the other 10 countries."
The package being negotiated is three-pronged: increasing the European Financial Stability Fund (EFSF), the so-called bailout fund; providing billions to recapitalize dangerously leveraged banks; and shaving the debt owed by Greece to bondholders to reach agreement on a second bailout for Greece. This, known as the haircut, could cut up to 50% of Greece's bank dept, if Merkel gets her way.
The details, constantly being renegotiated, are not yet clear. But what is obviously on the table now is the open flirtation between eurozone leaders toward a deeper relationship to save their currency is moving forward.
"The European Union has 27 members not 17 members and the (other 10) can't be [left] out [the process]," said Piotr Maciej Kaczynski, researcher at the Center for European Policy Studies in Brussels.
But Merkel, whose conservative Christian Democrats unveiled far reaching proposals for closer integration Tuesday, including a pan-European monetary body, said changes are necessary and it is important to solve the problems of the bloc.
