Bundestag approves Spanish bailout with large majority
The German Parliament on Thursday (19 July) approved a bailout for the Spanish banking sector of up to €100 billion, despite criticism that Berlin is funding a "bottomless pit."
Members of the German Bundestag summoned back from holidays for a special session approved - by 473 votes in favour, 97 against and 13 abstentions - a demand by finance minister Wolfgang Schauble to approve Germany's contribution of up to €29 billion to the Spanish bank bailout.
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Schauble said Madrid was carrying out the necessary reforms of the labour market, pension and health systems. But the country's financial sector needs a bailout to buy more time and avoid being shut out from markets, after the real estate sector crashed leaving banks with piles of bad loans, he added.
"Even the appearance that Spain will not be able to recapitalise the banks on its own can lead to contagion and then it becomes a problem of financial stability for the whole eurozone," the German minister said.
Following a decision by the constitutional court, the German parliament has to approve each financial assistance programme from the eurozone's temporary bailout fund, the European Financial Stability Facility.
The details of the package are to be agreed upon on Friday during a conference call of eurozone finance ministers, at the end of which Spain is expected to officially sign the 'memorandum of understanding' spelling out what the terms and conditions are.
Each bank that will receive bailout money will be evaluated by an external auditor and the insolvent ones will be closed down, Schauble said. Bank managers will have to take a pay-cut and state aid will come only after own resources are exhausted, he added.
In addition, the Spanish government "obliges itself" to strictly adhere to the European Commission's recommendations on reducing its budget deficit, improving its competitiveness and boosting employment.
Schauble said that the loan will be contracted by the Spanish government - represented by a bank resolution fund (Frob) - and that the government will remain liable for paying back the money.
A June summit deal allowing the eurozone bailout fund to directly recapitalise banks - keeping the debt off the government's books - will only come into place once a eurozone-wide banking supervisor is in place.
But getting this new authority up and running is expected to take at least a year, even though a political agreement to set it up may be reached by the end of this year.
Schauble also noted that Germany's contribution may slightly increase if Cyprus goes ahead with a request to be exempt from bailing out Spain's banks. Debt-ridden Nicosia is also in line for a bailout. "In that case our contribution would rise from €29.07 billion to €29.13 billion," he said.
The contribution was approved despite stern remarks from both opposition and ruling coalition MPs. Social-Democrat leader Frank-Walter Steinmeier criticised the continuous German contributions to a "bottomless pit."
"It's always the same story, about the southerners lacking discipline and the need for Germany to teach them some," he said. "But nobody believes this story anymore. I cannot remember how many self-imposed red lines you have crossed. People don't understand anymore where you want to go."
Liberal leader Rainer Bruederle said Germany is "not your nice uncle or aunt handing out candy", while the Greens criticised the fact that the bailout will go to the banks, rather than to the real economy.