Bloomberg News

Merkel Gets Backing From German Lawmakers on Greece Bailout

June 09, 2011

(Updates Greek bonds, euro in sixth paragraph, adds creditor rollovers in seventh.)

June 9 (Bloomberg) -- Lawmakers from Chancellor Angela Merkel’s coalition fell in line behind her on a second bailout for Greece, clearing a potential hurdle to preventing the euro region’s first sovereign default.

Finance Minister Wolfgang Schaeuble, who with Merkel briefed lawmakers at evening meetings in Berlin yesterday, snuffed out any rebellion over aid after calling for private investors to share a “substantial” amount of the burden. Schaeuble is due to address the lower house of parliament tomorrow at the start of a debate on “euro zone stability.”

“It’s about the future of the currency union, possibly about Europe, and also about Germany’s economy,” Hans Michelbach, the ranking CDU member of parliament’s Finance Committee, told reporters after the closed-doors meeting. “You always have to consider the end, and that may mean contagion dangers for other countries and domino effects on our banks.”

Merkel again faces a balancing act over the debt crisis that has returned to Greece more than a year after it received a 110 billion-euro ($161 billion) bailout. While risking a clash with the European Central Bank on investor involvement, Merkel must also take into account voter anger over additional aid and opposition from her coalition partner even as investors and fellow leaders urge Germany to step up its response.

President Barack Obama, while hosting Merkel at the White House this week, made it clear he’s looking to policy makers in Europe’s largest economy to prevent an “uncontrolled spiral of default” in countries such as Greece to avoid “disastrous” harm to the U.S. economy.

Greek Needs

The yield difference, or spread, between German 10-year bunds and similar maturity Greek debt widened 50 basis points to 1,359 basis points as of 2:41 p.m. in Berlin. The Greek 10-year yield rose 49 basis points to 16.64 percent. The euro fell 0.2 percent to $1.4570.

Greece’s financing needs total about 90 billion euros through 2014, Schaeuble told lawmakers, according to two who were present. Germany is seeking about 30 billion euros in rollovers by creditors, two people with direct knowledge of the negotiations said separately.

“The responsibility is clear,” Economy Minister Philipp Roesler, who leads the Free Democrats, told reporters after Merkel briefed the party for more than two hours. “We stand by the euro and it’s now a matter of stabilizing the currency.”

‘Financing Modalities’

Euro finance ministers met yesterday in a telephone conference and had their “first exchange of views on the financing modalities” for Greece, according to a statement issued by the group’s chairman, Luxembourg’s Jean-Claude Juncker.

Schaeuble told lawmakers in Berlin that the meeting agreed to set up a working group comprising officials from euro-area governments, the ECB and International Monetary Fund charged with drawing up a model for a “soft restructuring” of Greece’s debt, Deputy Finance Minister Steffen Kampeter told reporters.

Coalition lawmakers are today drafting a resolution giving Merkel and Schaeuble guidelines on Greece that will be taken to a non-binding vote tomorrow. The ruling parties may present separate resolutions on Greece and on the permanent ESM rescue fund depending on the outcome of a progress report by the so- called troika of the IMF, the European Commission and ECB, party spokesmen said June 6.

Merkel’s CDU/CSU bloc and the FDP “will formulate a resolution together,” Peter Altmaier, the CDU’s parliamentary manager, told reporters.

German ‘Obligations’

“I assume it will be a clear recognition of our European obligations, but it will also make clear what has to change and what has to be done for the next steps to be taken,” Altmaier said. “This means solidarity with Greece, but linked to clear conditions.”

There will be a “clear majority” for the resolution to provide further aid to Greece while tightening budget rules to restore fiscal discipline in the euro region, Rainer Bruederle, lower-house leader of the Free Democrats, said today.

“There has to be a participation of private creditors” and Greek privatizations, Bruederle said on ARD television. “We will give the government clear guidelines in parliament on Friday on what it can do.”

--Editors: Alan Crawford, James Hertling

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net; Rainer Buergin at rbuergin1@bloomberg.net

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


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