The German Chancellor told a packed Bundestag they must fulfil their “historic duty” by approving her negotiating role at the Brussels emergency summit, which is considering ways to boost the firepower of the €440bn (£383bn) European Financial Stability Facility (EFSF).
“No one should take it for granted that there will be peace and affluence in Europe in the next half century,” she said.
“The world is watching Germany and Europe to see if we are ready and able to take responsibility. If the euro fails, Europe fails.”
Supporters hailed Merkel’s victory – by 503 votes to 89 – as a boost to her authority at home and in Brussels but she remains weakened by the domestic perception of dithering during the crisis. Fifteen members of her centre-right coalition either voted against the motion or abstained yesterday.
The vote was passed with changes because German politicians do not want to see ECB loans used to prop up the EFSF. With a leveraged EFSF, the central bank will no longer need to buy bonds on the secondary market.
The options being discussed in Berlin are for the fund to offer guarantees to purchasers of new Eurozone debt or to use part of its capacity to set up an investment vehicle to attract money from sovereign wealth funds. The two proposals could also be combined.
Merkel said it was right to take the chance of higher risks which would come from leveraging the EFSF. She wants to see Greece’s debt to gross domestic product ratio cut to 120 per cent by 2020.
That would mean a 50 per cent writedown for private sector bondholders under plans put forward by the ECB, European Commission and the International Monetary Fund.