Merkel Wins Greek Aid Vote After Warning

By Patrick Donahue and Tony Czuczka - Feb 28, 2012 3:14 PM 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 ballot that showed dissent in her coalition growing, 496 members of the lower house, or Bundestag, backed 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 European Union and the global economy.

“Angela Merkel’s strident insistence that bailing out Greece is vastly preferable to the alternative was important,” Kit Juckes, head of foreign-exchange research at Societe Generale SA, said in a note today as he forecast the euro rising to $1.50. “Europe’s leaders have always stepped back from the edge of the abyss after flirting with disaster.”

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.

Euro Gains

The euro added 0.4 percent to $1.3445 at 9:10 a.m. Frankfurt time. The Stoxx Europe 600 Index (SXXP) opened up 0.2 percent to 264.28.

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.

Merkel 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.

“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.

‘Stop’

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.

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.

“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 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