European markets heaved a collective sigh of relief on Thursday after Germany's federal Parliament or Bundestag voted by an overwhelming majority (523 votes for, 85 against), to up Germany's contribution to a special fund which is likely to put an end to Greece's debt woes.
Chancellor Angela Merkel had described the reinforcing of the European Financial Stability Facility (EFSF) as “critical for Europe”.
The expansion of the bailout Fund now depends on the approval of six other Euro zone countries. If this approval is obtained over the next few weeks, the fund would be in a position to give bailout packages totalling up to €600 billion.
The approval by the Bundestag was a massive step forward in tackling the sovereign debt problem which has crippled several European economies and a new confidence was reflected by the markets with stocks rising sharply both in Europe and on Wall Street.
The vote in the Bundestag was a clear victory for Chancellor Angela Merkel. It was feared that the more conservative elements in her ruling coalition who have in the past openly said Greece should opt out of the Euro zone and that it was foolish to throw good money after bad in the bottomless pit of Greece's debt would try to block this legislation. But the Chancellor has worked hard to convince her partners that the best way forward for Europe to save, not abandon both Greece and the Common European currency. Ms. Merkel also received support from the opposition Socialist party, the extreme left and the Greens. However, Ms. Angela Merkel may find it difficult to persuade her colleagues to substantially increase Germany's financial contribution to the Fund.
The agreement signed last July with Greece on a second bailout may also have to be renegotiated based on the findings of an inspection team from the International Monetary Fund and other creditors who arrived in Athens on for discussions with Prime Minister Georges Papandreau on Thursday.
“We are in an exceptionally difficult situation, because the financial markets remain extremely uncertain,” said German Finance Minister Wolfgang Schaeuble in Parliament ahead of the vote, to win support for the measures.
Ms. Merkel fought hard to quell the rebellion within her own ranks and though there was an effort by some ultra conservative MPs to scuttle the move, she emerged with her majority intact. However, Ms. Merkel received a severe tongue lashing from Members of the Social Democratic and Green parties for her vacillation on giving Greece her full throated support and the small, hesitant steps she has taken on the debt crisis which has made the crisis much worse.
Keywords: Greece's debt woes