German politicians approve euro rescue package

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The Independent Online

German politicians backed a $1 trillion safety net to stabilise the euro but world stocks slid further today on fears Europe's debt crisis and tougher financial regulation will choke economic recovery.

The Bundestag (lower house) approved Berlin's contribution of up to 148 billion euros ($183.8 billion) 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 by 319 votes to 73 with 195 abstentions after the opposition Social Democrats and Greens abstained. The upper house (Bundesrat) also approved.

But the vote brought no relief for battered global stocks.

European shares extended losses to 2 per cent on the day after Asian stock markets slid again. Japan's Nikkei average closed 2.5 per cent down for a loss of 6.5 per cent on the week, mostly due to worries about the euro zone.

Before Wall Street opened, the US S&P stock futures index briefly fell below 1,060, the level hit at the bottom of a still-unexplained sudden "flash crash" on May 6.

Chancellor Angela Merkel's centre-right government failed to secure broad parliamentary backing to ease public hostility to bailing out weaker euro zone states despite unilaterally banning speculative trade in some financial instruments on Wednesday.

Indeed 10 members of her ruling coalition rebelled by either voting against the bill or abstaining, according to official voting records, highlighting the domestic pressure she faces.

The surprise German ban on naked short-selling of sovereign euro bonds and some financial shares sent stocks and the euro plunging this week and drew sharp criticism from EU partners, including close ally France, which were not consulted.

That prompted Merkel and French President Nicolas Sarkozy to pledge on Thursday to work together to solve the European debt crisis, support the euro and press jointly for global financial regulation.

European finance ministers and policymakers met in Brussels on Friday to discuss tightening the bloc's tattered budget discipline rules and improving economic policy coordination in the 16-nation euro zone.

Berlin wants harsher sanctions on deficit sinners and an unprecedented insolvency procedure for states crippled by debt. No immediate decisions were expected but ministers from France, Sweden and Austria voiced support on arrival for German demands for stricter punishment of budget offenders.

"Today's meeting is to co-ordinate economic policies. Obviously the decision taken in Germany .... was not an example of co-ordination," Spanish Economy Minister Elena Salgado said pointedly in a radio interview.

Several euro zone governments have followed Athens in announcing or planning austerity measures to shore up their credit ratings and avoid having to seek a Greek-style bailout.

But real doubts remain about their ability to push through savage spending cuts in the teeth of public opposition.

The head of Spain's largest union Comisiones Obreras (CCOO) said it could call a general strike to protest against planned austerity measures, probably for one day, although analysts regarded Greek-style unrest as unlikely.