News Column

German Parliament Clears the Way for Spanish Bank Bailout

July 19, 2012
Euro bailout of spain

Germany's parliament gave bipartisan endorsement Thursday for a 100-billion-euro (123-billion-dollar) bailout for Spanish banks, clearing the way for Eurogroup finance ministers to approve the loan.

Most of Chancellor Angela Merkel's legislators as well as opposition Social Democrats and Greens backed the bailout by the European Financial Stability Facility (EFSF). Of the 583 legislators present, 473 voted in favour, 97 against and 13 abstained.

Mavericks in the main parties broke ranks. Among Merkel's 237 Christian Democratic and Christian Social Union supporters, 12 announced in advance to party leaders they would oppose the bill.

There were also dissenters in the junior coalition party, the Free Democrats. One, Frank Schaeffler, warned, "The ground is being prepared for direct aid." He said he would vote against the bailout. "The market-economy system is being perverted," he added.

The government has spent most of the week denying claims that the money may be lost if the banks collapse, insisting that the Spanish government is committed to repaying it. Finance Minister Wolfgang Schaeuble said no scheme to directly aid banks existed yet.

He stressed that there was still no eurozone agency in place to bail out banks. One only be instituted by unanimous decision at a European summit, with Germany's parliament having a veto.

"Only after such decisions could a European banking regulator be built up and established with disciplinary power over distressed banks," he said.

"Only when such a banking regulator with ECB involvement exists can the question be discussed of financing the restructuring of distressed banks, as initiated by the banking regulator, by European mechanisms and institutions."

The minister, who was to represent Germany Friday at the Eurogroup finance ministers' meeting, said Berlin supported a restructuring of Spanish banks, saying, "We have a strong interest in Spain continuing its fundamental economic reforms."

The parliament interrupted its summer recess to debate and vote on the issue, with 94 per cent of the 620 members attending.

The opposition Left Party opposed the bailout, as did small numbers of Social Democrats and Greens.

In Brussels, the European Commission denied that eurozone loans could be used for buying Spanish government bonds - a step that would reduce the country's high borrowing costs - as well as for rescuing Spanish lenders.

Simon O'Connor, spokesman of EU Economy Commissioner Olli Rehn, said there had been "a misunderstanding" after drafts of the Spanish bank rescue deal were leaked in Berlin ahead of the Bundestag vote.

The sum that euro members have made available is "to recapitalize the Spanish banking system ... not for other objectives. I don't think I can be any clearer than that," O'Connor said.

A reference in the draft to the possibility of tapping into eurozone funds for government bond purchases is there "purely for informational purposes," O'Connor said, adding that Spain must file a separate request if it wants to access that facility.

Borrowing costs for Spain meanwhile rose again. Although Madrid raised 2.98-billion-euro in bond auctions, it came at a higher cost.

Two-and five-year bonds fetched yields of 5.2 and 6.5 per cent, up from 4.3 per cent and 6.07 per cent in the previous auction in June. Seven-year bonds had a yield of 6.7 per cent.

At the same time, the yield on 10-year bonds breached the critical 7-per-cent level after Thursday's bond sale.

dpa jbp sit alv amc mat bve Authors: Jean-Baptiste Piggin, Sinikka Tarvainen, Andrew McCathie and Alvise Armellini

191632 GMT Jul 12

Source: Copyright 2012 dpa Deutsche Presse-Agentur GmbH

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