The single European currency faces a week of political uncertainty, with national parliaments in Slovenia, Finland and Germany holding crucial votes on the euro zone’s expanded EFSF bailout fund.
Eurozone leaders agreed on 21 July to give the European Financial Stability Facility (EFSF) more powers, including the ability to give precautionary loans to countries and to buy sovereign bonds of struggling states. The changes need to be approved by national parliaments.
On Tuesday, the Slovenian parliament will vote on the EFSF’s expanded powers after the government of Prime Minister Borut Pahor was toppled last week by parliament.
Most analysts expect parliament will pass the legislation that will widen the scope and value of the fund after the parliamentary board for finances and monetary policy passed it last week but a surprise rejection cannot be excluded.
Meanwhile, Slovak parliamentary committees are expected to start discussion on the EFSF this week, with the final vote seen later in October.
In Germany, the Bundestag will vote on the EFSF’s expanded powers on Thursday (29 September), in a crucial vote which is being widely described as a major test for Chancellor Angela Merkel who is facing a revolt among her own ranks.
Last week, the parliamentary leaders of Merkel’s conservatives and Free Democrat (FDP) coalition partners rallied behind the draft law, clearing the way for its eventual approval.
Although the law is sure to go through parliament because opposition parties support it, Merkel is under pressure to win over the dissenters in her coalition.
Some German politicians have suggested that if Merkel fails to win a majority with the conservative parties in her coalition – known in Germany as a “chancellor majority” – she should dissolve parliament and call new elections.
In an interview on Sunday Merkel said she did not see Thursday’s vote as “make-or-break” for her government. “We are talking about a law here, a completely normal law. The government needs a majority. The chancellor majority is what you need when you are voted in as chancellor, or in other special personnel cases,” she said.
“I want my own majority and I will fight for this.”
Merkel also got backing from the four most important German business associations, which have written an open letter the parliamentarians in the Bundestag urging them to approve the EFSF.
In Finland, the parliament should also approve the EFSF’s expanded remit in a vote expected this week, said finance minister Jutta Urpilainen. “I hope and I think it is likely that these changes will go through,” she told the press, without giving further details on when the vote would be held.
Pressed by a nationalist party, the True Finns, Finland has asked for collateral guarantees to Athens on the EU’s second bailout to Greece, approved by eurozone leaders on 21 July.
Urpilainen said negotiations over the collateral issue were ongoing and that she hoped a deal would be reached as soon as possible. “Last week the Eurogroup decided on two principles, that collateral must be available for everyone and that they include conditions,” she said. “What these conditions would be has not yet been decided, but it is a subject of negotiations as is the collateral model.”
Talk of Greek ‘orderly default’ gathers pace
Meanwhile, talks of an “orderly default” of Athens on its huge debt pile is increasingly being cited as one of three possible scenarios for resolving Greece’s fiscal woes and prevent it from spreading to other eurozone nations.
Two pro-government newspapers reported Finance Minister Evangelos Venizelos had told ruling Socialist deputies he saw three scenarios to resolve the crisis, including one involving an orderly default and a larger than 50% haircut for bondholders.
But a high-level government source denied the reports and Venizelos, heading to Washington for talks with Greece’s lenders, said the country was committed to implementing the second, €109-billion bailout it has agreed to.
“All other discussions, rumours, comments, and scenarios, which are diverting our attention from this central target and Greece’s political obligation … do not help our common European task,” he said in a statement issued by his ministry.
His comments were echoed by German Chancellor Angela Merkel who said on Sunday that allowing Greece to default on its debt now would destroy investor confidence in the eurozone and might spark contagion like that experienced after the bankruptcy of Lehman Brothers in 2008.
“We need to take steps we can control,” Merkel said, drawing a parallel between the Greek situation and that of Lehman, whose bankruptcy helped trigger the global financial crisis.
“What we can’t do is destroy the confidence of all investors mid-course and get a situation where they say that if we’ve done it for Greece, we will also do it for Spain, for Belgium, or any other country. Then not a single person would put their money in Europe anymore.”