The two chambers of the German parliament (Bundestag and Bundesrat) have adopted the law that will now allow Germany to provide its share of the emergency package to stabilise the euro. Germany’s share will be up to 123 billion euros. With the emergency package, the Europeans are sending a clear signal that they intend to underpin the stability of the euro zone.
Chancellor Angela Merkel welcomed the decision of the parliament. "I am delighted that we have managed to adopt the package of measures to stabilise the euro," she said. She underscored that fact that it is important that the parties in government have sent a clear signal to Europe and for Europe – but that this signal is linked to an equally clear signal in favour of a culture of greater stability within the euro zone.
Stability of the euro in the interests of Germany The measures now adopted are in Germany’s direct interests. "We are doing this for ourselves and in the interests of the generations to come," pointed out Federal Finance Minister Wolfgang Schäuble during the debate in the German Bundestag. The euro has hitherto been extremely stable, more stable even than the Deutsche Mark. As an exporting nation, Germany is very much interested in seeing the European economic area protected from fluctuations in exchange rates by the common currency.
At the same time Germany, the largest state in the euro zone, bears a special responsibility for the common currency. Even following on the assistance for Greece, the Federal Finance Minister stressed how essential the emergency package is for the euro. "The markets will only trust these measures when they actually come into force."
Assistance for absolute emergencies Two different mechanisms are involved which follow on one from another. Concrete financial assistance will only be used as a last resort, though, should another euro-zone member state face the threat of insolvency.
The precondition is that the member state in question is seriously threatened by exceptional circumstances beyond its control. It must also present a strict economic and financial policy concept, produced with the collaboration of the European Commission.
The stages involved in the emergency package
Stage One: European Stabilisation Mechanism
Initially, the EU can take out loans of up to 60 billion euros and pass these on to affected euro-zone countries. The EU budget is the collateral. The euro-zone member state in question will have to repay the loan to the EU with interest.
Step Two: Loan Guarantees
Only once these EU loans (plus the contribution of the IMF) have been exhausted, would further financial assistance from euro-zone countries be made available. The euro-zone states would provide loan guarantees up to a ceiling of 440 billion euros up to 30 June 2012.
The loans would be extended by an international society to be founded specifically for this purpose. Governments would not then pay out any cash out of their reserves. The share of each euro-zone state in the loan guarantees would be equivalent to their share in the European Central Bank. Germany’s share of the loan guarantees is thus 123 billion euros. Should unforeseen needs arise, this sum may be exceeded by 20 percent with the authorisation of the Budget Committee of the German Bundestag.
International Monetary Fund: The IMF will put up in each case at least half of the sum put up by the EU.
The EU ministers of finance agreed on the emergency package on 9 May. The euro-zone states the Council of the European Union, the European Commission and the European Central Bank all agreed to exhaust all possible options for preserving the stability of the euro area.
Tackling the causes
The euro-zone states have also decided to accelerate the consolidation of their budgets. Portugal and Spain in particular have undertaken to take significant additional steps to consolidate their budgets this year and next year.
The governments reached an agreement that the economic policies of the individual euro-zone states should be more closely monitored and coordinated. The aim is partly to ensure that more attention is paid to the impacts on levels of indebtedness and on competitiveness.
They also intend to tighten up the regulations ensuring compliance with the Stability and Growth Pact, in part by introducing more effective sanctions.
Regulating financial markets, fighting speculationWith respect to financial market regulation, the EU now intends above all to forge ahead with achieving greater transparency and supervision of the derivates markets. The role of rating agencies too is to be reviewed.
The euro-zone states intend to prompt a speedier recovery from the financial crisis and ensure that the financial sector itself bears a larger share of the costs of any future crises.
The European Council will now deliberate and decide by June whether further-reaching measures are needed in the light of the most recent speculation against indebted states.