Merkel Seeks Bundestag’s Backing to Bolster Bailout Fund

German Chancellor Angela Merkel will seek backing from lawmakers to bolster the euro bailout fund amid banks’ protests over the size of the so-called “haircut” being imposed on Greek bonds. On October 26, Merkel’s party has proposed that parliament put to a full vote a measure to leverage the European Financial Stability Facility rescue fund to more than 1 trillion euros.

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Under the terms of an agreement struck with her coalition, Merkel must seek parliamentary backing for any proposed changes to the rescue fund, to which Germany has been the biggest contributor, that would carry budget implications for the euro-zone’s biggest economy.

“This is new territory,” said Steffen Seibert, Merkel’s chief spokesman, when asked whether parliament could dictate Merkel’s stance at the next European summit, also to be held October 26. German lawmakers will discuss two models for leveraging the EFSF, neither of which is “mutually exclusive,” according to Seibert.

European leaders are looking at bank recapitalizations of roughly 100 billion euros, while working on proposals to leverage the EFSF fund to over 1 trillion euros. They are also urging financial institutions to accept losses between 50% and 60% on their Greek debt.

The German Bundestag won greater power over budgetary matters after coalition lawmakers complained that they were being steamrolled into accepting decisions made by euro leaders in Brussels that would affect the German budget. These new powers were bolstered by a September 7 decision by the Federal Constitutional Court that only upheld Germany’s participation in the bailout fund so long as the Bundestag maintained its authority over the government’s budget.

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Of the Bundestag’s 41-member budget committee, 22 are members of Merkel’s coalition. On October 21, the committee set conditions for negotiations. Those conditions state that the bailout fund can’t receive a banking license or European Central Bank funding, and that the current 440 billion-euro volume, of which Germany has pledged 211 billion euros, cannot be increased.