BERLIN—Signs are increasing that German Chancellor Angela Merkel may have to risk her political career to make sure that Germany delivers on its commitment to expanding the euro zone's bailout capacity.
Two mock votes among the center-right parties of the federal government late Monday suggested that she can scarcely rely on their support alone to guarantee the passage of a vote that would increase the lending capacity of the European Financial Stability Facility and allow it to take on the role of lender of last resort from the European Central Bank.
Ms. Merkel's coalition in parliament in theory has 19 lawmakers more than needed for a majority of 311 votes, but a total of 14 voted against the package and another 11 abstained in separate mock votes late Monday. If only five of those abstentions harden into votes against, then the government would lose its majority.
The test vote came after Ms. Merkel's European policy was blamed for contributing to a steep decline of her Christian Democrat, or CDU, and Free Democrat, or FDP, allies at elections in Ms. Merkel's home state of Mecklenburg-Vorpommern Sunday.
Parliament is scheduled to vote Sept. 29 on decisions made by euro-zone leaders in recent months to boost the EFSF's actual lending capacity to €440 billion ($620.3 billion) from €250 billion previously, and to allow it to buy sovereign bonds in the secondary market.
Defeat in that vote would indirectly, but effectively, spell the end for the euro zone's existing bailout strategy, compromising the support of Europe's largest and strongest economy for the ranks of the crisis-struck: Greece, Ireland and Portugal.
It could also spell disaster for Italy and Spain, by removing a key prop from their bond markets and allowing speculation against them to rage unchecked. The ECB has signaled that it only intends to perform that supporting role temporarily, until the EFSF can take over as lender of last resort.
Ms. Merkel's government is already treading a fine line between its pledge of solidarity for the euro and its refusal to give Greece any more aid unless it delivers on the reforms it has promised. Finance Minister Wolfgang Schäuble repeated that there would be no disbursement of the next tranche of Greek aid, due at the end of this month, if Greece can't satisfy the "troika" of European Union, ECB and International Monetary Fund officials that are monitoring its progress.
"It would be very, very difficult" for Ms. Merkel to continue as chancellor if she were seen to rely on the opposition, Citigroup economist Jürgen Michels said. He argued that the biggest risk to the current coalition came not from within Ms. Merkel's Christian Democrats, but the Free Democrats, who suffered the latest in a string of humiliations in Mecklenburg-Vorpommern, with only 2.7% of the vote. The far-right National Democratic Party got double that.
Holger Schmieding, chief economist at Berenberg Bank in London, said in a note Tuesday that Ms. Merkel may resort to desperate measures to whip her backbenchers into line. "If need be, she may even tie the euro vote to a vote of confidence so that dissidents within her coalition would risk bringing down the government," he said.
The mock votes came ahead of an eagerly awaited ruling by Germany's constitutional court Wednesday on the legality of last year's €110 billion first bailout for Greece, and the setup of the EFSF, the euro zone's current rescue fund. Citigroup's Mr. Michels noted that the decision will allow the government to present a draft on Sept. 29 that it knows is constitutionally sound, something that could disarm some of the internal criticism she is facing currently.
Source: http://online.wsj.com
Two mock votes among the center-right parties of the federal government late Monday suggested that she can scarcely rely on their support alone to guarantee the passage of a vote that would increase the lending capacity of the European Financial Stability Facility and allow it to take on the role of lender of last resort from the European Central Bank.
Ms. Merkel's coalition in parliament in theory has 19 lawmakers more than needed for a majority of 311 votes, but a total of 14 voted against the package and another 11 abstained in separate mock votes late Monday. If only five of those abstentions harden into votes against, then the government would lose its majority.
The test vote came after Ms. Merkel's European policy was blamed for contributing to a steep decline of her Christian Democrat, or CDU, and Free Democrat, or FDP, allies at elections in Ms. Merkel's home state of Mecklenburg-Vorpommern Sunday.
Parliament is scheduled to vote Sept. 29 on decisions made by euro-zone leaders in recent months to boost the EFSF's actual lending capacity to €440 billion ($620.3 billion) from €250 billion previously, and to allow it to buy sovereign bonds in the secondary market.
Defeat in that vote would indirectly, but effectively, spell the end for the euro zone's existing bailout strategy, compromising the support of Europe's largest and strongest economy for the ranks of the crisis-struck: Greece, Ireland and Portugal.
It could also spell disaster for Italy and Spain, by removing a key prop from their bond markets and allowing speculation against them to rage unchecked. The ECB has signaled that it only intends to perform that supporting role temporarily, until the EFSF can take over as lender of last resort.
Ms. Merkel's government is already treading a fine line between its pledge of solidarity for the euro and its refusal to give Greece any more aid unless it delivers on the reforms it has promised. Finance Minister Wolfgang Schäuble repeated that there would be no disbursement of the next tranche of Greek aid, due at the end of this month, if Greece can't satisfy the "troika" of European Union, ECB and International Monetary Fund officials that are monitoring its progress.
"It would be very, very difficult" for Ms. Merkel to continue as chancellor if she were seen to rely on the opposition, Citigroup economist Jürgen Michels said. He argued that the biggest risk to the current coalition came not from within Ms. Merkel's Christian Democrats, but the Free Democrats, who suffered the latest in a string of humiliations in Mecklenburg-Vorpommern, with only 2.7% of the vote. The far-right National Democratic Party got double that.
Holger Schmieding, chief economist at Berenberg Bank in London, said in a note Tuesday that Ms. Merkel may resort to desperate measures to whip her backbenchers into line. "If need be, she may even tie the euro vote to a vote of confidence so that dissidents within her coalition would risk bringing down the government," he said.
The mock votes came ahead of an eagerly awaited ruling by Germany's constitutional court Wednesday on the legality of last year's €110 billion first bailout for Greece, and the setup of the EFSF, the euro zone's current rescue fund. Citigroup's Mr. Michels noted that the decision will allow the government to present a draft on Sept. 29 that it knows is constitutionally sound, something that could disarm some of the internal criticism she is facing currently.
Source: http://online.wsj.com
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