German parliament to vote on boosting bailout fund

BERLIN Tue Oct 25, 2011 7:18pm EDT

BERLIN (Reuters) - German Chancellor Angel Merkel looks set to win a parliamentary vote Wednesday on boosting the firepower of the euro zone rescue fund with a large majority, bolstering her negotiating strength ahead of a crunch EU summit.

Merkel needs to win the vote in the Bundestag lower house of parliament, due around 1200 GMT, to have a mandate to negotiate a deal with other EU leaders aimed at delivering a range of measures to stop the euro zone debt crisis spiralling.

The bill will almost certainly pass as the government has agreed a joint motion on the plans with the opposition Social Democrats (SPD) and Greens.

The question is whether Merkel, who still faces a rebellion from within her own center-right coalition, can pass it without having to rely on the opposition, which would be a severe blow.

A test run held Tuesday showed she is likely to win the vote without needing opposition support -- but only just. In the ballot, a total of 16 lawmakers from Merkel's coalition parties either voted against or abstained.

The proposals, to increase the efficiency of the 440 billion euro ($610 billion) fund without pouring more taxpayers' money into it, are the subject of fierce debate in Europe's largest economy and biggest contributor to the fund.

Merkel is battling sliding ratings for herself and her center-right coalition over her handling of the euro zone crisis. Critics at home and abroad have accused her of taking a dithering approach that has exacerbated the debt crisis.

Merkel's hands have been tied in her negotiations on the euro zone crisis since a Constitutional Court ruling last month demanded a greater say for German lawmakers on bailout issues.

That ruling has frustrated some EU leaders eager to implement quick solutions. Even after the summit, Germany's parliament budget committee must meet to discuss the outcome.

Monday, her conservatives unexpectedly announced the Bundestag lower house would hold a full vote on the new guidelines on the European Financial Stability Facility (EFSF).

Analysts say Merkel wants to have a large parliamentary majority to gain legitimacy in negotiating for Germany. The chancellor will hold a speech on the motion around 1000 GMT, with a parliamentary debate following.

Just a month ago, Merkel struggled to contain a rebellion from within her own center-right coalition in a parliamentary vote on the EFSF. She was only five votes short of having to rely on opposition support which would have been a major blow, possibly even triggering early elections.

Some rebels who fear the crisis is spiralling out of control are gearing up once again to defy Merkel.

An EU paper, obtained by Reuters, shows two options for increasing the fund's firepower -- an insurance model and a special purpose investment vehicle (SPIV) Investors hope leaders will Wednesday decide which of the two approaches should be used, or a combination. The summit is expected to run late into the night.

Merkel said Tuesday Germany opposed a phrase in the draft summit conclusions urging the ECB to go on buying troubled states' bonds.

The draft seen by Reuters supports a continuation of "non-standard measures in the current exceptional financial market environment."

"This sentence is not agreed with us," Merkel told reporters, adding that Germany -- a country wedded to central bank independence -- did not want a declaration from politicians telling the ECB what to do.

An opposition lawmaker said the German parliament would try to point the ECB in the opposite direction, noting a joint motion between the government and main opposition parties contained the expectation that the ECB would stop its bond purchases on the secondary market.

(Additional reporting by Madeline Chambers; Editing by David Stamp)

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