Europe again steps back from brink in debt crisis
By Stephen Brown and Madeline Chambers
BERLIN (Reuters) - Following a now-familiar script, Europe again averted disaster in its debt crisis when German lawmakers rallied behind Chancellor Angela Merkel to approve a stronger euro zone bailout fund on Thursday.
But bigger challenges loom for the euro zone now. Financial markets are already anticipating a likely Greek default and demanding more far-reaching measures to prevent the crisis that began in Athens from spreading far beyond Europe and its banks.
The Bundestag (lower house) overwhelmingly approved new powers for the 440-billion-euro EFSF fund to make precautionary loans, help recapitalize banks and buy distressed countries' bonds in the secondary market.
Despite a rebellion by 15 backbench Euroskeptics, Merkel won 315 votes from her own center-right coalition, enough to avoid the humiliation of having to rely on the opposition Social Democrats and Greens to pass the plan.
"The result of the vote is a strong signal for Europe. The broad majority in parliament clearly shows that Germany is committed to the euro and to protecting our currency," said Hermann Groehe, general secretary of her Christian Democratic party.
The measure was part of a July 21 agreement by euro zone leaders meant to solve the crisis by providing a second bailout for debt-stricken Greece, partly funded by private sector bondholders, and providing more firepower to prevent contagion engulfing bigger EU economies Spain and Italy.
But that deal failed to stop Italian and Spanish borrowing costs soaring, forcing the European Central Bank to intervene in August to buy their bonds, and may yet unravel in Greece, which has fallen behind again on its deficit reduction targets, pushing it closer to default.
"There is a growing realization, even among the more reticent, that the July 21 package is yesterday's war, and we need to go further," a senior EU official said, speaking on condition of anonymity. Continued...