* Cabinet backs new powers for euro rescue facility
* Merkel must avert rebellion by allies in Sep. 29 vote
* Conservative dissenter says millions agree
* Poll suggests faith in euro is declining
(Adds poll on euro)
By Sarah Marsh and Noah Barkin
BERLIN, Aug 31 German Chancellor Angela Merkel's
cabinet approved new powers for the euro zone's bailout fund on
Wednesday, but she faces an uphill battle to convince party
sceptics to back efforts to contain the crisis.
Concerned that Germany's parliament has little control over
the European Financial Stability Facility (EFSF), some members
of Merkel's centre-right coalition are threatening to oppose
boosting its powers when the Bundestag (lower house) votes on
If enough conservatives rebel and Merkel is forced to rely
on opposition parties to pass the legislation, she could face
pressure to dissolve parliament and call early elections,
although the chances of that seem slim.
"I've reached the point that I just can't support this
anymore -- pushing off enormous risks into the future," said the
most prominent dissident, Wolfgang Bosbach, who is normally a
party loyalist with impeccable conservative credentials.
Bosbach told Reuters he did not relish the risk of a vote of
confidence in Merkel, but was no longer prepared to rubber-stamp
aid for heavily indebted countries such as Greece with measures
that could cost future generations dearly.
"I haven't taken any polls. But there are millions of people
in the public and hundreds of thousands in the party who have a
similar critical view," he said.
Euro zone leaders last month agreed to boost the effective
size of the EFSF to 440 billion euros ($635 billion) and give it
extra powers, including a potential role in helping to
In a sign of how important the current debate in Germany is
for investors, news of the cabinet approval pushed the euro up
to session highs against the dollar.
There are fears that if Berlin insists on parliament having
a greater say in the EFSF, other countries will too, limiting
the fund's ability to act swiftly to save stricken states.
"It has to be possible to put the rescue mechanism into
operation without having to hold a big public debate in the
Bundestag," said Merkel's floor leader in the lower house,
But Oskar Niedermayer, a political scientist at Berlin's
Free University, said events in Germany showed "governments in
the euro zone can no longer assume they can take decisions that
affect their citizens very closely without consulting their
A poll presented to senior centre-right MPs suggested that
ever more Germans are doubting the euro, with 76 percent saying
they had little or no faith in the currency, up from 71 percent
in a survey by Allensbach pollsters two months ago.
Faltering economic growth in the 17-nation euro zone risks
prolonging the debt crisis, which began nearly two years ago and
has spread from peripheral states such as Greece, Portugal and
Ireland -- all of which have received bailouts -- to bigger
economies like Spain and Italy.
German Finance Minister Wolfgang Schaeuble said an expanded
EFSF that would have powers to intervene in bond markets and
provide precautionary credit lines to troubled member states
would help the bloc "prevent contagion in a timely fashion".
European economist Silvio Peruzzo at RBS in London said it
was vital to get new powers for the EFSF passed swiftly because
committing real resources "sends a very strong signal of reform
momentum in the euro area".
"Our working assumption at the moment is that Germany is
fully on board to give the EFSF new powers. But we are at a
point where the political capital is being tested," he said.
With nearly two dozen lawmakers from Merkel's
centre-right reported to be considering voting against the
stronger EFSF, conservative leaders have come up with a proposal
to assuage fears the Bundestag will be bypassed on future aid
Norbert Barthle, chief budget expert for the bloc, told
Reuters his plan should mollify legislators without adding to
the contagion risk by introducing lengthy legislative hurdles.
German lawmakers have so far had only a consultative role in
deploying rescue funds, voting in resolutions giving Merkel
political support but which did not have the power to stop the
payouts. Their insistence on having more influence should be
upheld by Germany's top court next week.
In a ruling on lawsuits brought by six eurosceptics, legal
experts expect the Constitutional Court to say on Sept. 7 that
Berlin broke no laws by contributing to the bailouts, but that
parliament should be consulted more.
As Europe's biggest economy, Germany foots more than a
quarter of the bill for euro zone bailouts.
NOT THE FINAL HURDLE
The Bundestag vote on Sept. 29 will be followed by a vote in
the upper house (Bundesrat) the next day, which would allow
ratification of the EFSF by the end of the month as Merkel and
French President Nicolas Sarkozy have promised.
Under Barthle's proposal, the Bundestag budget committee
would be informed of minor EFSF decisions but there would be a
fuller parliamentary consultation in other cases.
Merkel's conservative coalition has 330 seats in the
620-seat Bundestag. If 20 or more of her allies dissent, she may
be forced to rely on leftist opposition parties -- the Social
Democrats (SPD) and Greens -- to pass the measures.
"I think Merkel will get the majority she needs simply
because the pressure is so high," said Niedermayer. "Lawmakers
know that if they don't deliver that, there is a chance of the
coalition falling apart, leading to new elections."
The coalition parties themselves will write up the draft law
and present it to parliament to speed up the ratification
procedure and ensure it is passed by month end.
Even then, Merkel's euro zone worries will be far from over.
This month Germany also starts discussing the permanent bailout
fund that is to become operational in mid-2013, the European
Stability Mechanism (ESM), which has to be ratified by year-end.
($1 = 0.693 Euros)
(Additional reporting by Thorsten Severin; Writing by Stephen
Brown and Noah Barkin; Editing by David Stamp)