German Lawmakers Back Fund For Bailout

BERLIN—Germany's parliament ratified euro zone's permanent bailout fund late Friday, as as rules that enshrine German-style budget discipline euro-zone countries and most other European Union members, widespread criticism of Chancellor Angela Merkel her return from a European summit she made major concessions support for Spain and Italy.

The votes in the German Bundestag, the lower of parliament, marked a major step a long effort to erect a robust firewall financial crisis in the euro zone and install controls to enforce budget discipline European governments. A driving force the so-called fiscal pact, Ms. Merkel appealed in a speech lawmakers for her governing coalition and opposition parties to set their differences and show Europe that Germany behind the euro.

Ms. Merkel said ratification the bailout fund, called the European Stability Mechanism, and the fiscal pact would be "a signal of unity determination—to those at and abroad…a signal to overcome the European sovereign debt crisis lastingly, and a signal Europe is our future." Germany's upper house of parliament, the country's 16 states are represented, also approved the two measures late Friday night.

an overwhelming majority of lawmakers the governing coalition and the opposition approved the ESM and the fiscal pact, measures have numerous critics in Germany. in Ms. Merkel's conservative-led coalition, critics fear the permanent bailout fund will create mounting financial risks German taxpayers as debtor nations in southern Europe press for and more financial assistance. The fiscal pact, seeks to make euro-zone governments run balanced budgets time, has come fire from the opposition Social Democrats for putting austerity growth and employment.

Ratifying the proposals required a two-thirds majority in Bundestag because of its impact German states' rights, making Ms. Merkel dependent opposition votes. The Social Democrats supported the fiscal pact only in for Ms. Merkel agreeing to a "growth pact" this week's EU summit. The opposition also Ms. Merkel promise to push a tax on financial transactions such as stock and bond purchases in least parts of the EU.

The chancellor's concessions home to secure Friday's ratification vote paled beside the major face she performed at the EU summit in Brussels in the small hours of Friday morning. pressure from Italy and Spain, which were threatening block the EU growth measures Ms. Merkel had promised her domestic opposition, the German leader agreed allow more-flexible financial aid struggling euro-zone governments and banks, and on less-onerous .

The EU summit agreed the ESM would be able to inject capital directly ailing Spanish banks, once the euro zone created a centralized banking regulator. Germany previously insisted that the ESM could lend money only governments and couldn't invest directly in banks. Italy pressured Ms. Merkel into letting the bailout buy a euro-zone country's bonds in return only lenient policy conditions for the country concerned.

her speech, Ms. Merkel called her summit compromises "good and sensible," saying that EU leaders had expanded the range instruments Europe's disposal to fight the crisis. She insisted she won important concessions herself, especially euro-zone banking supervision.

Dissidents within her center-right coalition criticized concessions to Spain and Italy, saying they would add risks for German taxpayers. Some opponents the ESM had already vowed challenge the bailout fund's legality in Germany's constitutional court. The court is expected to rule any challenge within weeks.


Adapted and abridged from: The Wall Street Journal, June 29, 2012.