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In a vote the German Bundestag has now laid the essential national legal foundation for Germany’s guarantee commitment to be raised. Tomorrow the second chamber, the Bundesrat, will deliberate on the legislation.

 

Convincing majority

 

With 523 votes for and only 85 against (with three abstentions) the members of the German Bundestag made it unequivocally clear that they stand behind the efforts to safeguard the euro. 

 

According to the Bundestag records, 315 members of the coalition parties voted by name for the motion, meaning that the coalition members voting with the Chancellor assured her of a majority. 311 votes for the motion were needed to ensure this majority. There are a total of 620 members of the German Bundestag.

 

 

EFSF stands for the European Financial Stability Facility. The fund is to provide the full rescue sum of 440 billion euros to stabilise the euro. The EFSF will thus need the best possible credit rating. To ensure it is granted this, the EU has raised the total guarantees provided by member states to back-up issues of bonds or other debt instruments by the EFSF to 780 billion euros. The German guarantee commitment will rise from 123 billion euros to about 211 billion euros. The pertinent draft legislation is based on decisions taken by the EU heads of state and government in March and July.

 

 

"We agree here to a maximum German guarantee commitment for the EFSF of 211 billion euros. No more is needed," declared Federal Finance Minister Wolfgang Schäuble unequivocally during the debate in the German Bundestag. He attempted to stem any further insecurity on the part of citizens, with respect to the EFSF.

 

Ensuring lasting stability for the euro

 

Only under exceptional circumstances and with very strict conditions attached will the rescue fund be allowed to purchase government bonds on the primary market, i.e. directly from the member state concerned. The German government is convinced that these measures will make it possible to preserve the stability of the euro in the long term. To achieve this, some member states will also have to become more competitive and cut their national debt. The German government thus underlined its determination to safeguard the stability of the euro with the help of an effective range of instruments at euro zone level. 

 

An important contribution will be made by the reformed and strengthened Stability and Growth Pact, which yesterday passed the European Parliament. Wolfgang Schäuble stressed that he was happy that the Pact was now strengthened with the six legislative proposals. The Chancellor entrusted him last year with this task.

 

The ability to stop cross-infection more effectively

 

Additional more flexible instruments are to make the euro-zone rescue fund, the EFSF, better able to stop cross-infection among member states. In future, the EFSF will be able to 

 

• Extend loans to states (also to non-programme states) to recapitalise their struggling financial institutes. This should enable banks to remain solvent, because a financial crisis jeopardises the real economy and the national budget too.

• Take precautionary action with pertinent provisos on the basis of an agreed programme in an at-risk euro-zone state.

• Intervene also on secondary markets, provided the European Central Bank identifies exceptional circumstances on the financial market and thus a threat to financial stability. The EFSF can then purchase government bonds of a euro-zone state already in circulation from other investors.

The aim is to prevent speculation spreading to the euro zone as a whole. For this step, the euro-zone rescue fund will need a unanimous decision of all member states. It is not the job of the European Central Bank to purchase government bonds already in circulation on the secondary market, said Wolfgang Schäuble. That is why the EFSF should be enabled to do so, within certain limited parameters and only with the approval of the European Parliament.

 

Assistance only with ties

 

The proviso remains unaltered that emergency measures to keep a euro-zone state solvent may only be taken by the EFSF if they are unavoidable in order to maintain financial stability throughout the euro zone as a whole. The new instruments are also to apply for the permanent European Stability Mechanism (ESM), in line with an agreement reached by the heads of state and government on 21 July. The German government will be taking further decisions in this regard in the weeks to come, announced the Federal Finance Minister.

 

The troika (European Union, European Central Bank and the International Monetary Fund) will today once again take up its work in Greece. It is to determine whether or not Greece meets the conditions for the disbursement of the next instalment of the rescue package for Greece. Only then can the euro zone give the green light for the next instalment to be paid out, probably on 13 October, explained Wolfgang Schäuble. Then it must be considered how the Greek economy can once again become self-sustaining in the longer term. The German economy has declared its willingness to support Greece.

 

 

Reining in the financial markets

 

"We are facing an extremely difficult situation because the financial markets are very jumpy at the moment," said the Federal Finance Minister during the debate in the German Bundestag. He welcomed the European Commission’s proposal to introduce a financial transaction tax, which goes back to an initiative of the German government. 

 

The German government will continue to work for better regulated financial markets and more structured products in Europe and at international level. With its bank levy and legal ban on the naked short selling of shares and euro government bonds the German government is one step ahead of the EU.