Wednesday

29th Jun 2022

Eurozone countries hold series of crucial votes

  • The German parliament is due to vote on Thursday (Photo: Deutscher Bundestag/Stephan Erfurt)

A swathe of European parliaments are this week due to decide on the strengthened temporary bailout fund, the EFSF, but the eurozone debate is moving faster than the political process.

MPs in Finland, Germany, Slovenia, Estonia and Austria will in the coming days all cast their vote on whether to accept a July agreement of eurozone leaders to enhance the €440bn fund so that it can loan pre-emptively and buys bonds of struggling eurozone countries on the secondary market.

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While eight of the 17 eurozone countries have already greenlighted the fund - which needs the approval of all to get off the ground - the states where the new powers and the merits of eurozone bailouts have been most hotly contested still have to vote.

This is especially so in Germany, due to vote Thursday. While the bailout fund is expected to be approved, analysts are already wondering at what political cost to German chancellor Angela Merkel, whose authority is being tested by fellow conservatives in Bavaria and by members of the liberal party, the junior coalition partner. Much is expected to be made of whether the fund scrapes a majority or gets an absolute majority.

Finland, another country where the debate has strongly focussed on whether fiscally prudent countries should be required to loan money to trouble fellow euro members, is set to vote on Wednesday.

However national politicians in these countries are in the awkward position of voting on a fund that is likely almost immediately to be substantially altered.

Over the weekend it emerged that the EU, under immense pressure from Washington, is considering considerably enhancing the European Financial Stability Facility to finally give it the power to tackle all aspects of the crisis - including under-capitalised banks and contagion to Italy and Spain.

Under the mooted plans EFSF money would be leveraged through the European Central Bank to give it up to 2 trillion euros in fire-fighting aid.

Politicians are already on the defensive about the new proposals, with it unclear whether they in turn would also require parliamentary approval.

"There are no plans in the Netherlands, and as far as I know none in Finland either, to raise the amount in the EFSF," Dutch Prime Minister Mark Rutte said Monday (26 September) following a meeting with his Finnish counterpart Jyrki Katainen, reports Dutch News.

"We need the package of 21 July and are, both in Finland and in the Netherlands, extremely busy on ensuring it can be implemented. The rest is speculation," said Rutte.

Opposition politicians in Germany are already protesting the potential plans, which may also including establishing the permanent bailout fund - the European Stability Mechanism - a year earlier than planned.

"The chancellor must very quickly make clear that there are no change to the basic workings of the EFSF," said Christian Lindner, secretary general of the liberal party, on Monday. The "character of the provisional bailout fund" must not be changed later and that should be politically and legally clear, he said.

Hermann Otto Solms, finance expert for the liberals, told Die Welt newspaper that if finance minister Wolfgang Schaeuble does not immediately clarify that "there is no leverage, then we will not vote in favour of the law."

The last eurozone to vote on the fund is Slovakia on 11 October. It is also the state considered to be most likely to reject the fund's new powers.

Until this date, policy makers in the eurozone will have to continue the difficult juggling act of letting parliamentary process take its course while hurrying to keep up with the pressure of doubting markets.

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