Merkel Wins Greek Aid Vote After Warning Lawmakers

By Patrick Donahue and Tony Czuczka - Feb 28, 2012 6:00 AM GMT+0700

Chancellor Angela Merkel won a parliamentary vote on Greek aid after warning German lawmakers that pushing Greece out of the euro would risk “incalculable” damage, defying a public backlash against more bailout funds.

In a vote that showed dissent in her coalition growing, 496 members of the lower house, or Bundestag, voted in favor of the 130 billion-euro ($174 billion) package yesterday in Berlin; 90 voted against and five abstained. While questions on Greece’s remaining in the euro “have their justification,” Merkel warned that a failure of the euro might endanger the Europe Union and the global economy.

“I think those risks are incalculable, and therefore indefensible,” Merkel told lawmakers in the Bundestag. As chancellor, “I should and have to take risks, but I cannot embark on adventures. My oath forbids that,” she said.

Merkel’s government pushed through the measure to stave off a collapse of the Greek economy amid signs of growing resistance and as one of her Cabinet ministers said Greece should leave the single currency. Euro leaders will now shift their focus on whether to bolster the region’s bailout firewall as they prepare for a summit meeting in Brussels on March 1-2.

Merkel Lawmakers Rebel

The chancellor’s Christian Democratic bloc and its Free Democratic Party coalition partner were joined by most opposition Social Democratic and Green lawmakers in voting for the bailout. Yet 17 lawmakers within Merkel’s coalition opposed it -- another three abstained and six didn’t vote. That left the government with a majority of 304 votes of the 591 cast, though short of an absolute majority in the lower chamber. That would have required 311 votes. Thus Merkel failed to achieve a “chancellor’s majority,” a politically sensitive bar measuring support among her allies.

The Stoxx Europe 600 Index (SXXP) slid 0.3 percent to 263.86 at the close, after earlier falling as much as 1.2 percent. The benchmark measure extended last week’s 0.4 percent retreat. The euro was 0.3 percent weaker at $1.3404 at 6:19 p.m. Frankfurt time.

“There’s no need now for a debate on increasing the capacity” of the temporary and permanent bailout funds, Merkel said, citing lower bond yields for Italy and Spain.

She said euro leaders this week will discuss moving up capital payments for the permanent fund, the European Stability Mechanism, and that Germany is willing to pay in 11 billion euros this year if other countries speed up payments as well.

‘It Makes Sense’

Thomas Straubhaar, president of Germany’s HWWI economic institute, said the Bundestag had no choice other than backing the Greek rescue.

“It’s expensive but it makes sense because every other option to save Greece would end up being even more expensive,” Straubhaar said in an N24 television interview.

The stakes of the Bundestag vote were underscored by a headline yesterday in Germany’s best-selling Bild newspaper calling on lawmakers to reject the Greek bailout package. Exhorting Bundestag members to “Stop!” in a front-page headline, the Axel Springer AG (SPR)-owned newspaper capitalized on public distaste over the rescue package.

Bild reported on Feb. 26 that 62 percent of Germans wanted lawmakers to vote down the package, versus 33 percent who approved, according to a poll.

Greek Euro Exit

Interior Minister Hans-Peter Friedrich became the first German Cabinet member to raise the prospect of a Greek departure from the euro area. Friedrich told Der Spiegel magazine in an interview that while Greece shouldn’t be expelled from the monetary union, it would have better chances outside the area.

“The path that Greece has to take is a long one, and certainly one not without risks,” Merkel said. “This is also for the success of the new program. Nobody can give a 100 percent guarantee of success.”

As euro leaders consider plans to combine rescue funds and produce a potential firewall of 750 billion euros, German officials hit an impasse with Group of 20 finance ministers over the weekend in Mexico City. The G-20 rebuffed pleas for additional funding through the International Monetary Fund until the euro area first ratchets up its own resources, placing the onus on Germany to overcome its objections.

The U.S. led calls for Europe to step up, with Treasury Secretary Timothy F. Geithner saying in a Feb. 25 speech in Mexico that the region needed to make their crisis-fighting commitments “credible.” The same day, German Finance Minister Wolfgang Schaeuble said the deal struck for Greece’s 130 billion-euro bailout showed “Europe has done its homework.”

Merkel Pushes Back

Merkel continued to push back against plans to combine the 250 billion euros remaining in the region’s temporary fund and the 500 billion-euro permanent rescue fund that is due to come into force in July.

This week’s summit in Brussels likely won’t reach a decision on an increase of the 500 billion-euro lending ceiling, putting off a final verdict on the issue until later in March, European Commission President Jose Barroso said. “March of course has 31 days,” Barroso said at the Lisbon Council in Brussels yesterday. “During March this matter is going to be addressed.”

Elsewhere, parliaments in Finland and the Netherlands plan to vote on the same Greek aid package tomorrow, while the European Central Bank is preparing to issue a second round of unlimited three-year loans to help shore up the region’s banks.

To contact the reporters on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net; Tony Czuczka in Berlin at aczuczka@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net