Thursday, September 29th, 2011 at 9:52am

Merkel faces crucial vote on Greek bailout

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Greek Prime Minister George Papandreou met Merkel in Berlin earlier this week [GALLO/GETTY] 

German Chancellor Angela Merkel faces a battle for her political survival as parliament votes on whether to approve new powers for the European Union’s bailout fund.

Some of her coalition partners are worried about throwing good money after bad and may oppose the motion in Thursday’s vote.

Support from the centre-left opposition would ensure Germany passes the bill on new powers for the European Financial Stability Facility (EFSF), which some countries such as Finland have ratified but others, including Slovakia, are disputing.
But if dissent in her coalition forces Merkel to rely on opposition votes to pass the new powers for the $600bn rescue fund, it would be politically damaging for the conservative chancellor.

Merkel’s Christian Democrats (CDU) and their allies were pressuring the handful of dissidents to get in line before the vote at 11am (0900GMT).

“We are working to convince people,” said CDU second-in-command Hermann Groehe.

He said “it will be close” but the government would not put itself in the humiliating position of depending on the Social Democrats and Greens.

International auditors from the European Commission, along with those from the European Central Bank and the IMF, are due to begin reviewing Greece’s attempts to reduce its debt levels on Thursday.

Eurozone members are in the process of ratifying proposals put forward in July, one of which would see private lenders writing off about 20 per cent of their loans to Greece.

The auditors endorse the country’s latest austerity measures for Athens to receive its latest tranche of bailout funds and meet its debt obligations.

Financial tax

On Wednesday, the EU’s executive proposed a EU wide tax on financial transactions which it said would raise $78bn a year, despite resistance from the UK and national banks across the continent.

Click here for a QA on EU transaction tax proposals

The EC proposals for the tax, which would take effect from January 2014, will need unanimous approval from all EU states.

Jose Manuel Barroso, the head of the EC, said on Wednesday that banks must “make a contribution” as Europe faced its “greatest challenge”.

Under the plan, stock and bond trades would be taxed at the rate of 0.1 per cent, with derivatives at 0.01 per cent.

The EU executive said the tax would be imposed on all transactions in financial instruments between financial firms when at least one party to the trade is based in the bloc.
Revenues would be divided between the EU’s own budget to cut national contributions, with the rest going directly to member states.

The G20 forum had tried and failed in the past year to agree on a global transaction tax, as many countries fear it would be too easy for financial firms to evade.

Germany and France have been among countries pressing the EC to propose the tax, as they seek to show their citizens they are serious about recouping some of the costs of the banking crisis.

Austria, Belgium, Norway and Spain also support such a tax.
UK opposition

The UK is against any EU wide transaction, as London could be hardest hit by the tax as the majority of banking transactions in Europe come through the city.

“The government will continue to engage with its international partners on Financial Transaction Taxes and has no objection to them in principle,” a UK Treasury spokesman said.

“But any financial transaction tax would have to apply globally and there are a number of practical issues that need to be worked through.”

Without Britain’s backing, the EU commission may attempt to introduce the tax voluntarily among eurozone countries.

The proposal would introduce new minimum tax rates and harmonise different existing taxes on financial transactions in the EU.

The European Banking Federation said the introduction of a transaction tax was “nonsense” as it could shift business to elsewhere in the world.

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