Angela Merkel’s Cabinet Approves Plan to Expand European Rescue Fund

German (NYSE:EWG) Chancellor Angela Merkel’s Cabinet ratified measures today to combat the euro-area debt crisis, with senior members of Merkel’s Christian Democrats saying they are now confident they will be able to secure a coalition majority for the proposed changes to the European rescue fund. Ministers meeting in Berlin today backed a reworked European Financial Stability Facility already approved by European leaders at a July 21 summit in Brussels.

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The new measures would give the EFSF more bond-buying power, and would increase Germany’s share of EFSF loan guarantees from 123 billion euros to 211 billion euros. The measures have met resistance within Merkel’s own Christian Democrats and from the opposition, as some claim they would undermine German fiscal sovereignty. Germany (NYSE:EWG) has Europe’s largest economy, and has made the biggest contributions of any country to the bailouts for Greece, Ireland, and Portugal. Those opposing the reworked EFSF say they are already putting too much taxpayer money on the line.

Wolfgang Bosback, the Christian Democrats’ chairman of parliament’s interior-affairs committee, says he is “not against helping Greece”, but doesn’t think that a program that allows them to grow their debt can actually help. However, he also says, “This is a fundamental question for our children and grandchildren, whom we’re already saddling with mountains of debt — and then we’re adding huge risks on top of that.”

As recently as Monday, Merkel did not have enough coalition votes in the Bundestag to pass the measures. However, not passing the measures would mean risking the collapse of many European governments, hurting the region’s common currency, and devastating the European economy. The draft bill gives parliament the right to decide how it will participate in EFSF operations, invites lawmakers to make proposals on separate legislation that will determine Germany’s (NYSE:EWG) contribution to Greece’s second aid package, and shows that the new EFSF will not allow banks in need of capital to tap the euro backstop directly.

While Merkel now has coalition support for the bill, there will be a regional election Monday in Merkel’s home state of Mecklenburg-Western Pomerania, followed by a state election on September 18 in Berlin. The two ballots will be the last of seven this year, which have seen voters punishing the coalition parties for their support of public bailouts of indebted euro-zone countries. Polls are already showing that Merkel’s opposition, the Social Democrats, are likely to win both elections.

Parliament will vote on changes to the EFSF on September 29. While the Social Democrats, and also the Greens, have now agreed to back the measures, any rebellion within Merkel’s own party could destabilize the coalition. Still, analysts are calling significant dissent unlikely. “Few in the ruling coalition want to risk being sent into the political wilderness if rejecting this bill means new federal elections,” said Manfred Guellner, head of polling company Forsa. “In a crisis that is so complex, where so much is at stake and where no one has a simple solution, it makes sense to seek consensus. That’s why we hear supportive noises from the main opposition parties and why a coalition majority is likely.”