As we've highlighted before, a bust-up in Germany over the fate of the eurozone's bail-out schemes could be imminent, both on the EFSF and its permanent successor.
As if Merkel didn't have enough on her hands, the Bundestag yesterday approved a motion that explicitly demands that the German government bans the EFSF from buying government bonds from troubled eurozone countries. In effect, the Bundestag is asking Merkel to backtrack on last weekend's agreement between eurozone leaders which would have given the EFSF the mandate to buy bonds directly. That's a pretty big set-back for the Chancellor.
The motion isn't binding for the government, but still hugely problematic since the Bundestag needs to approve any deal to increase the scope and size of the EFSF.
The vote illustrates the growing gaps between Angela Merkel and parliamentarians belonging to all three coalition parties (CDU, CSU and the FDP). If this happend in the UK it would be labelled an outright "rebellion" against the government.
According to Märkische Allgemeine, the Bundestag gave its consent to a permanent eurozone bail-out fund, a European Stability Mechanism (ESM), which would take over from the EFSF in 2013. However, it attached a number of strings, including:
- strengthened stability and growth pactIf you think about it, those are not small thing to ask for in the current climate. This one could be interesting.
- guarantees for the independence of the ECB
- safeguards that the ESM would only be activated in emergency cases
- a mechanism which would involve private creditors in the rescue fund (unclear how this would work)
- a restructuring procedure which would include private creditors
- a guarantee that the eurozone would not turn into a transfer union.