The German Cabinet has approved the country's share of a massive 750 billion-euro (nearly a trillion-dollar) financial rescue package for the euro region. The approval that came yesterday was agreed by the European Union Finance Ministers over the weekend in Brussels.
Germany will take over the responsibility for loan guarantees amounting to 123 billion euros out of a total 440 billion euros envisaged in the package. This could be raised by 20 per cent if necessary. The maximum limit in that case will be 158 billion euros, the German government said in a statement.
Besides the loan guarantees, the euro zone stability package involves 60 billion euros of emergency funding from the European Commission while the International Monetary Fund will contribute up to 250 billion euros.
The aid package is intended to prevent the Greek debt crisis from spreading to other heavily indebted euro zone countries such as Portugal, Spain and Ireland. The 16 European Union nations, which use the euro, will have access to the package.
The German government wants a legislation on Germany's contribution to the euro bailout package passed by parliament by the end of this month. But Chancellor Angela Merkel's conservative-liberal coalition no longer has its majority in the Bundesrat, the upper house, after a similar coalition in North Rhine Westphalia was voted out of power in Sunday's state election.
The government is now at the mercy of the opposition to get the bill passed. The opposition Social Democratic Party (SDP) says it will vote for the bill only if the government takes steps to get the country's banks involved in the bailout and in paying for the costs of future financial crisis by imposing a financial transaction levy.
The SDP had made a similar demand when a legislation on Germany's contribution to the 110-billion-euro financial rescue package for Greece came up for voting in the Bundestag, the lower house of parliament.
It abstained from the voting, but the bill on Germany's share of 22.4 billion euros was passed without any hitch because of the comfortable majority the ruling coalition had in both houses of parliament. The SDP's parliamentary leader Frank Walter Steinmeier said progress in imposing a financial transactions levy on the banks will be a condition for his party to vote for the new bill in the Bundesrat.
He also urged Chancellor Merkel to present accurate figures about the total burden for Germany from the euro zone stability package. Introducing a financial transactions levy is also a bone of contention among Chancellor Merkel's coalition partners.
While Chancellor Merkel's Christian Democratic Union (CDU) and its Bavarian sister party Christian Social Union (CSU) are in favour of a financial transaction levy, their coalition partner Free Democratic Party (FDP) firmly opposes it.
Chancellor Merkel sees no need for speeding up the procedure for a parliamentary approval for the euro zone stability package as in the case of the rescue package for Greece because any debt-ridden member nation facing payment difficulties can draw from the European Commission's emergency fund.
Merkel said on Monday that the euro zone stability package was necessary to defend the euro from attacks by speculators and to safeguard the stability of the euro area.
The European Central Bank has established that the euro is being targeted to widespread attacks by speculators, she said, "There is no alternative to the rescue package to protect and safeguard the long-term stability of the euro area."
By setting up a massive euro zone stability package, the European Union is sending a "powerful message" to the financial markets and speculators that the EU is determined to defend the stability of its common currency, she said.
"Europe has the collective will to do everything to protect our euro," Merkel said, adding, "This is our resolute and collective message to those who think they can weaken Europe."
