German Parliament voted Thursday to rescue Spanish banks after the government of Chancellor Angela Merkel convinced skeptical lawmakers that the Spanish government would be held responsible for repaying the debt.
“Problems in the Spanish banking sector have become a danger for the European economy,” Wolfgang Schäuble, the German finance minister, said during a debate on whether to approve Germany’s 29 billion euro ($35.5 billion) share of the 100 billion euro fund.
However without Germany’s approval, the money can not be disbursed, and Spain is on the brink of a series of big bank failures, according to a New York Times report.
Spain’s unemployment rate was reported at 24.4 percent in the first quarter of 2012 and the country’s leaders have been squabbling over a range of austerity measures designed to salvage the economy while German lawmakers were busy finding a way to bail out the country's banks.
Last month, Bundestag, Germany’s lower house, sensitive to growing political unrest in Germany, left Spain financially responsible for financing the rescue of floundering banks. Because of the severity of Spain’s economic retraction and massive debt, borrowing costs are at levels considered unsustainable and investors doubt the country's ability to repay the bailouts.
“The interdependency of banks and governments will not be cleared up today,” Priska Hinz, a member of Parliament from the Green Party, said in a floor debate.
The measure passed by a wide margin, 473 to 97, but only after members of Parliament voiced rising concerns about the ever-growing cost of saving the euro. As the largest country in the euro zone, Germany pays by far the largest share for bailing out Spain and Greece.
Frank-Walter Steinmeier, leader of Social Democrats in the Bundestag, said his party would only support the measure “because a refusal by Germany would be catastrophic.”
“But this can’t continue,” Mr. Steinmeier said.
The proceedings once again brought to light the increasing difficulty German lawmakers are facing in propping up the common currency with bailouts. Thursday, Ms. Merkel had trouble gaining support from members of her own governing coalition.
Last month, Ms. Merkel was able to muster a majority solely with members of her own Christian Democrats and her coalition partners, the Free Democrats, for another bailout fund. Meanwhile, German lawmakers are facing rising opposition regardless of party affiliation.
At issue is an agreement by European leaders signed in June that stipulates bailout money could go directly to Spanish banks. Germany holds veto powers and because it bears the bulk of the financial burden, it balked at dispersing tens of billions directly to struggling Spanish banks. German officials say the Spanish bailout money should not bypass governments until the European Central Bank assumes control of bank regulation for the euro zone. That event is months away and Spain wants the cash now.
“We have very clearly formulated under what conditions we are willing to provide this aid,” Volker Kauder, chairman of the Christian Democratic delegation in Parliament, said during the two-and-a-half-hour debate Thursday. “There will be no direct bank financing.”
Meanwhile, Spain’s Parliament approved on Thursday a decree allowing the country’s bank restructuring agency to disburse funds immediately to banks in need of liquidity. Additionally, the Spanish Parliament endorsed an austerity package worth 65 billion euros that had been presented by Prime Minister Mariano Rajoy last week. Rajoy’s Popular Party holds a parliamentary majority, assuring approval.
Spain has yet to explain how the bailout funds will be distributed, a major source of contention with German lawmakers. Novagalicia Banco is among the ailing banks that recently indicated they would need more capital than initially thought. Bankia, the largest troubled lender, asked in May for an additional 19 billion euros of capital.