Reply #11: German lawmakers back euro aid [View All]

[Demeter]

http://uk.reuters.com/article/idUKTRE64G2HV20100521

Germany's parliament approved on Friday a $1 trillion (696 billion pound) safety net to stabilise the euro as fears swirled that Europe's debt crisis and tougher financial regulation may choke economic recovery.

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European Union finance ministers, meeting in Brussels, backed a German call for tougher sanctions in future against states that flout the bloc's budget rules, to prevent any repeat of Greece's debt crisis, which required a euro zone/IMF bailout.

Worries persisted that Greece's debt troubles would spread to other indebted nations, dragging down Europe's economy and curtailing trade to the United States and Asia.

"The Greek debt crisis and its ripple effects are bad news for all corners of the world and there is a strong collective interest in containing the problem," said Eswar Prasad, senior fellow at the Brookings Institution in Washington.

European officials were eager to show they were committed to bringing down deficits without smothering a still-fragile recovery. European Central Bank President Jean-Claude Trichet sought to calm nervous markets by declaring the euro was not in danger.

Both chambers of parliament approved Berlin's contribution of up to 148 billion euros (129 billion pounds) in loan guarantees, deeply unpopular with voters, on top of an equally divisive 22.4 billion euros in bilateral loans for debt-ridden Greece.

The bill passed the lower house by 319 votes to 73 with 195 abstentions after the opposition Social Democrats and Greens abstained and 10 members of Chancellor Angela Merkel's centre-right coalition rebelled, highlighting the domestic pressure she faces.

The vote was not enough to stop the fall in European shares, which lost a further 0.5 percent on the day after Asian stock markets slid again. Japan's Nikkei average closed 2.5 percent down for a loss of 6.5 percent on the week, mostly due to worries about the euro zone.

"It doesn't make any difference what Germany does. It doesn't make any difference what the financial reform is. Traders and investors are frightened here, and they just want out," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

But Wall Street rebounded, led by financial shares, after the Dow Jones industrial average briefly fell below the symbolic 10,000 point level following U.S. Senate adoption on Thursday of a sweeping financial reform bill after months of fierce debate....