German vote on bailout fund fails to reassure foreign markets

The overwhelming vote by German lawmakers to boost the eurozone’s bailout fund has failed to reassure financial markets with Asian markets remaining flat in Friday trading. 

Reuters/Ralph Orlowski

German deputies voted overwhelmingly on Thursday to expand the scope of the 440-billion-euro European Financial Stability Facility, EFSF, handing it new powers, for example to buy sovereign bonds.

Stock markets on both sides of the Atlantic greeted the news with relief as German Chancellor Angela Merkel survived a vote that proved a hard-fought test of her political authority.

But analysts say the German move had not removed doubts that European policymakers are on track to surmount the crisis that is threatening the global economy.

Tokyo’s benchmark Nikkei 225 index was down 0.94 points to 8,700.29, while Hong Kong's Hang Seng Index dipped two per cent.

The euro also softened in Asian trade against major rivals, backtracking after an earlier boost following the German vote, as currency markets too stayed cautious over doubts about the fund's firepower.

The expansion boosts the contribution of Germany to 211 billion euros, though Finance Minister Wolfgang Schaeuble insisted there would be no more additional cash flowing from Berlin.

German Foreign Minister Guido Westerwelle said that with the vote, "the signal to our European partners is that you can rely on Germany."

"Today's decision is an important contribution to solving the debt crisis and to stabilising the euro," he said.

A spokesman for Economic and Monetary Affairs Commissioner Olli Rehn said the rescue fund was still a "work in progress" but stressed Brussels hopes all eurozone states will have ratified the agreement by mid-October.

Meanwhile, European Union, International Monetary Fund and European Central Bank
officials have begun crunch talks with Greek Finance Minister Evangelos Venizelos on
freeing up the next tranche of debt aid worth 8.0 billion euros, which Athens needs to pay its bills.

The debt-hit nation, sinking deeper into recession, must persuade the audit mission that its reform plans are credible to secure new funds from the 2010 110-billion-euro loan agreed with the EU and IMF.

And French President Nicolas Sarkozy meets Greek Prime Minister George Papandreou on Friday in Paris to take stock of Athens' efforts to end the debt crisis. On Tuesday Papandreou presented his crisis plan to German Chancellor Angela Merkel in Berlin.