Europe

Angela Merkel faces big test in German EU bailout vote

German Chancellor Angela Merkel at the Bundestag - 29 September 2011
Image caption Chancellor Angela Merkel pressed coalition dissidents to get in line before the vote

German Chancellor Angela Merkel faces a major test of her authority, as MPs vote on whether to approve new powers for the EU's main bailout fund.

Some of her coalition oppose committing more money to propping up struggling eurozone members such as Greece.

In Athens, protesting civil servants have blocked entrances to ministries.

The demonstrations come as international inspectors resume talks with Greece to decide whether it has done enough to receive more funds.

If more than 19 members of Mrs Merkel's coalition rebel against her, she will have to rely on the support of the centre-left opposition to pass the bill on new powers for the European Financial Stability Facility (EFSF).

The BBC's Gavin Hewitt in Berlin says that although the bill is expected to pass, Mrs Merkel could emerge weakened, unable to hold her coalition together at a critical moment in the eurozone crisis.

Mrs Merkel's Christian Democrats (CDU) and their allies have been pressuring the handful of dissidents to get in line before the vote.

German 'determination'

The vote is on whether to endorse a eurozone commitment to boost bailout guarantees to 440bn euros (£383bn).

That figure is already being dismissed as inadequate in the light of the worsening Greek crisis and the threat of it spreading to other economies.

Chancellor Merkel has said she believes the vote is about Germany demonstrating its determination to save the euro.

She has tried to assure coalition members that German taxpayers' money would not be wasted by voting on a new bailout for heavily indebted eurozone countries.

Eurozone members are in the process of ratifying proposals put forward over the summer to give the EFSF greater powers.

Separately, eurozone governments also gave their backing to a debt swap deal that would see private lenders agree to write off about 20% of their loans to Greece.

However, as Greece seemingly nears default and the debt crisis increasingly threatens to envelop Italy, a consensus has emerged in the past days that the current deal being voted on by the Bundestag does not go far enough.

G20 leaders met over the weekend to discuss the best way forward, but EU officials stressed that no grand plan of action had been agreed.

Crisis jargon buster
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AAA-rating
The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is minuscule.

Among the ideas reportedly discussed were a much deeper, 50% write-down of Greece's government debts, and strengthening the big European banks.

There were also rumours of a possible deal to increase the firepower of the bailout fund from 440bn euros to as much as 2tn euros, sparking the strong rally in markets seen earlier this week.

However, the idea of boosting the EFSF is deeply unpopular with Chancellor Merkel's coalition partners, the liberal FDP. Late on Tuesday, Finance Minister Wolfgang Schaeuble scotched the plan, calling it "a silly idea".

In Greece itself, public workers blocked entrances to a number of ministries, including finance, as inspectors from the international "troika" managing the bailout were due back in Athens.

The troika - made up of the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) - is to decide whether Greece has done enough to receive another 8bn euros (£6.9bn) of loans.

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Media captionBBC reporters on the bailout impact from Athens, Madrid and Paris

"Take your bailout and leave," shouted protesters outside the finance ministry, Reuters news agency reported. They said they wanted to prevent Finance Minister Evangelos Venizelos from meeting the troika officials.

Taxi drivers, hospital workers and other public sector staff are also due to strike on Thursday, angered by the announcement of new austerity measures including pension cuts and a new property tax.

Deputy Prime Minister Theodoros Pangalos the people's ability to pay extra taxes had been "exhausted for some time".

'Greatest challenge'

Without the new loans - laid out under the terms of a bailout agreed last year - Greece will soon run out of money.

New taxes have been approved and deeper spending cuts have been promised, but some decisions have been delayed and privatisation is running behind schedule says the BBC's Chris Morris in Athens.

Many people believe that austerity measures are pushing Greece's crippled economy deeper into recession and strangling any chance of growth.

On Wednesday, European Commission president Jose Manuel Barroso warned Euro-MPs that the EU was facing its "greatest challenge".

In his annual State of the Union address, he urged patience over the Greek debt problem, insisting Greece would remain in the euro.

His speech triggered a rise in markets, but those increases could fall back if talks in Athens on Thursday end in deadlock.

Greek Prime Minister George Papandreou, speaking in Berlin earlier this week, promised that Greece would keep its promises on implementing unpopular austerity measures in return for continued support from eurozone partners.

The eurozone debt crisis has prompted some observers to question the future of the single currency.

They see Greece returning to the drachma as the means to restore competitiveness and economic growth. Other countries, such as Portugal and the Irish Republic, might be prompted to follow.

But economists warn the costs of such a break-up of the eurozone would be huge.