The proposed changes to the European Financial Stability Facility (EFSF) must now go to Germany’s lower house for ratification on 29 September, where Merkel is expected to face a strong rebellion from more than 25 members of her governing coalition.
If she is forced to rely upon opposition support to get the measures through, it could prompt calls for an election, which would throw German politics into chaos at a fragile time for the region.
The changes to the EFSF are controversial because they enable it to deploy an enlarged capital pot without returning to paymaster countries for permission, in order to, for example, recapitalise a country’s banks or buy sovereign bonds in the secondary market.
The changes are part of a deal on Greece’s second bailout, worked out at a July summit of Eurozone leaders. But they must be ratified by member states before Greece can receive its new aid.
Greece has already faced calls to supply collateral in return for the cash. Finland said it had reached a bilateral agreement for cash collateral, prompting other paymaster countries to demand similar guarantees. There was even a suggestion that Greek bank shares could be used as collateral.