Germany approves loan guarantees as markets react

Germany’s parliament approved a 150 billion euro bill on Friday to help provide loan guarantees to eurozone countries. Chancellor Angela Merkel’s centre-right majority assured passage of the bill which will now be signed off by President Horst Koehler. The German chunk of the 750 billion euro package comes two weeks after a 110 billion euro Greek rescue plan was approved.

Photo: Reuters

Finance Minister Wolfgang Schaeuble told politicians that the package was crucial to ensuring stability, “because markets trust it only once it has actually been implemented”.

Earlier in the week Chancellor Angela Merkel had stressed the importance of the bailout fund, warning that the euro was “in danger”, saying there could be “incalculable consequences”.

However, the bid earned no immediate support from from EU finance ministers meeting in Brussels. EU president Herman Van Rompuy said the idea remained a long way off in the future.

"It is only in a long-term context" that the EU would put into place a permanent crisis resolution framework of the kind proposed in the Budenstag, he said. "In the short term, nobobey proposed that kind of scheme."

Market reaction on Friday was mixed. The Dow Jones Industrial Average fell below the 10,000 mark for the first time since a trading anomaly two weeks ago.

But support came from the Chinese on Friday who have backed the EU-IMF plan saying they believe in a “strong and stable” euro.

“The Chinese side is following carefully the development of the sovereign debt crisis in the European Union and hopes, and also believes that the efforts made by the EU and the IMF will end the crisis as soon as possible,” Chinese Commerce Minister Chen Deming told reporters after a meeting with EU Trade Commissioner Karel De Gucht.