September 28, 2011
Expanded Euro Bailout Fund Clears Hurdle
By JACK EWING and STEPHEN CASTLE
FRANKFURT — Europe took another step in its slog toward approval of a broader bailout fund for overly indebted countries Wednesday, as Finland’s parliament agreed to contribute its share despite an unresolved dispute over its demand for collateral from Greece.
The 103-66 vote in the Finnish Parliament, with 30 legislators absent, still leaves seven of the 17-member euro group yet to ratify a bailout fund that, despite expanded resources and power, is considered much too small to fend off further market attacks on Greece and other wounded countries.
The German Parliament is scheduled to vote Thursday on the fund, the European Financial Stability Facility, in what is seen as a crucial test for Chancellor Angela Merkel. Austria is scheduled to vote Friday. The remaining countries are Cyprus, Estonia, Malta, the Netherlands and Slovakia.
European leaders hope that the rest will give their approval by mid-October, about three months after representatives of the 17 countries in the euro zone agreed to give the E.F.S.F. more money and power. The expanded fund will be able to loan up to €440 billion, or about $600 billion, and issue guarantees for €780 billion.
The laborious approval process, which can be held up by objections from any one of the countries in the euro area, has highlighted deep flaws in euro area decision-making, which José Manuel Barroso, president of the European Commission, warned on Wednesday must be addressed.
“We are today faced with the greatest challenge our union has known in all its history,” said Mr. Barroso in his annual “state of the union” speech at the European Parliament in Strasbourg, France. “If we don’t move forward with more integration we will suffer more fragmentation. This will be a baptism of fire for a whole generation.”
Finland continues to demand that it receive collateral from Greece in return for aid to that country. But Finnish leaders argued that approval for the E.F.S.F., which will also provide aid to Ireland, Portugal and other countries, was a separate issue. That reasoning cleared the way for the Finnish Parliament to approve the bill.
Finland continues to negotiate on the collateral issue with its European partners, and officials in Helsinki have expressed optimism that a solution will be found to address Finnish sensibilities without undermining the aid package.
Mr. Barroso said that changes needed to secure the euro’s future might require reopening the E.U.’s governing treaty. He reiterated that Greece would stay in the euro area.
Mr. Barroso confirmed that the European Commission will speed up a feasibility study on the possibility of issuing euro bonds, common debt that would be guaranteed by all members of the euro zone. He gave his clearest support to the idea yet.
“Once the euro area is fully equipped with the instruments necessary to ensure both integration and discipline, the issuance of joint debt will be seen as a natural and advantageous step for all,” he said.
But other European leaders have ruled out euro bonds, notably Angela Merkel, the German chancellor, who reiterated her opposition Tuesday. It is unlikely that euro bonds could be introduced without German support.
However, leaders in Berlin are likely to welcome Mr. Barroso’s call for a change in the euro zone treaty to remove national vetoes that prevent nations that want to proceed with closer integration from doing so.
“We need to complete our monetary union with an economic union,” Mr. Barroso argued. “It is an illusion to think we could have a single currency and a single market with national economic approaches.”
Other governments will be wary. Such a treaty change would require ratification by member states and might trigger a referendum in some.
Mr. Barroso also announced a proposal for a Europe-wide tax on financial transactions, a move which is supported strongly in Germany and France but which nations such as Britain, the Netherlands and Sweden say they would support only if it was agreed at a global level — something unlikely to happen given opposition from the United States.
Stephen Castle reported from Brussels