The German parliament is expected to hold a full vote on Wednesday on proposals to leverage the euro-zone rescue fund, contrary to earlier plans to confine the vote to its budget committee, SPIEGEL ONLINE has learned from sources in Chancellor Angela Merkel's conservative Christian Democratic Union (CDU).Incomplete Step in Right Direction
At issue is the need to boost the impact of the �440 billion rescue fund, or European Financial Stability Facility (EFSF). There is concern that the current size of the (recently expanded) fund isn't sufficient should additional countries, particularly Spain and Italy, be infected with debt contagion. The fund is also designed to indirectly prop up European banks, which could also become expensive if European leaders this week agree to an even greater haircut on Greek debt. Up to 60 percent is currently under consideration.
The news raises the stakes even further for Merkel, who struggled to contain a rebellion in her ranks against the initial expansion of the EFSF in a parliamentary vote on Sept. 29, before the leverage plans took shape. Indeed, one of the strategies she pursued in putting down that rebellion was discounting speculation that the fund would be leveraged.
It is unclear when the proposed guidelines for the EFSF will become available for lawmakers to review -- it is possible that a new version will arrive from Brussels on Monday evening.
The proposal is a step, but a severely incomplete step in the right direction. The German supreme court has ruled that no more German taxpayer funds can be out at risk without a common referendum.
Please see Germany's Top Judge Throws Major Monkey Wrench Into Leveraged EFSF Machinery, Demands New Constitution and Popular Referendum for Further Powers for details.
Merkel wants to ram through a package outside parliament. It is clear that parliament needs to act, but it goes far beyond that. A leveraged EFSF puts more German taxpayer funds at risk and does so sooner.
This vote should not go to the Bundestag, but rather to German taxpayers. We know the score in advance on the latter. Leveraged mechanisms would not pass.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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