German lawmakers OK fiscal pact, euro fund

June 29, 2012 - 5:08 PM
Germany Financial Crisis

German Chancellor Angela Merkel addresses lawmakers on the decisions of the EU summit at the parliament Bundestag in Berlin, Friday, June 29, 2012. Chancellor Merkel faces a vote on the eurozone's new permanent rescue fund and the EU's fiscal pact. (AP Photo/Markus Schreiber)

BERLIN (AP) — German lawmakers on Friday approved Europe's new budget-discipline pact as well as the eurozone's permanent €500 billion ($623 billion) rescue fund, hours after Chancellor Angela Merkel defended concessions she made to financially troubled European nations at a summit.

A solid majority of more than two-thirds of all lawmakers of Parliament's lower house endorsed the two sets of legislations in a late night session, following urgent calls by Merkel to back the projects deemed crucial to stabilizing the 17-nation currency zone.

Merkel said supporting the fiscal pact and rescue fund sent "a signal of unity and determination, domestically and abroad; a signal toward overcoming the European government debt crisis sustainably, and a signal that for us Europe means our future."

"With these agreements, we are taking irreversible steps toward a sustainable stability union," she said.

The plans had support from Germany's two main opposition parties. A two-thirds majority was needed for the fiscal pact because it involves an internationally binding commitment to keep Germany's deficit low.

Parliament's upper house, which represents Germany's 16 states, approved both plans later in the evening, but its approval doesn't mean that the legislation will take effect immediately.

Germany's Federal Constitutional Court has asked President Joachim Gauck not to sign it into law immediately after Friday's parliamentary votes so that it has time to decide on expected calls for injunctions blocking the legislation. A decision could take as much as a few weeks.

Lawmakers voted 491-111 Friday with six abstentions to back the discipline pact — the so-called fiscal compact to which 25 of the European Union's 27 members have signed up.

Lawmakers also voted 493-106 in favor of the rescue fund, the European Stability Mechanism, with five abstentions.

The fund is meant to be operational next month, which required lawmakers to pass the legislation at the latest on Friday. Germany must pay about €22 billion in capital to underwrite the fund, and it guarantees about a third of its lending capacity.

Merkel noted that, in the future, countries will have to implement the fiscal pact to be eligible for aid from the ESM. "There is a legal link between solidity and solidarity, and I consider that very important," she said.

In her speech a few hours after returning from the summit in Brussels, Merkel defended concessions she had made there. She assured lawmakers that help to struggling countries and banks will still come with strings attached and insisted that some decisions were misunderstood.

Merkel had been opposed, at least in the near term, to some of the measures that she and the other 16 leaders of the euro countries agreed upon Friday. They include allowing Europe's bailout fund in the future to give money directly to a country's banks, without imposing strict austerity conditions on the government.

German media headlines immediately after the summit portrayed the outcome as a political defeat, but Merkel said her tough-love approach was intact.

Merkel told Parliament it was a "sensible decision" to allow countries that pledge to implement reforms demanded by the EU's executive Commission to tap rescue funds without having to go through the kind of tough austerity measures demanded of Greece, Portugal and Ireland. It was a concession to Italy and Spain in particular.

Merkel insisted it was only about helping countries whose financial stability is threatened by high interest rates but don't need to be taken off markets altogether.

She said there will always be conditions and a time frame, which will be supervised, and told lawmakers they should read the EU Commission's current economic policy recommendations for Italy and Spain — "they are tough conditions."

Heading in to the Thursday-Friday summit in Brussels, Merkel had appeared thoroughly uncompromising — insisting on the importance of getting budgets in order and improving eurozone strugglers' competitiveness while brushing aside talk of shared debt liability in Europe.

But in a victory for Spain and Italy, she agreed that funds set up to bail out indebted governments could be allowed to funnel money directly to stressed banks, once an "effective single supervisory mechanism" for banks is set up.

Merkel said that it was a matter of "several months or perhaps a year" but that having an effective supervisor that could set and enforce conditions "changes the conditions for the question of how we can deal with banks in the eurozone."