Chancellor Angela Merkel won the support of German lawmakers to increase the eurozone's bailout fund Wednesday and indicated that private investors like banks should take a writedown of at least 50 percent on their Greek debt holdings.
What this means is that the the most economically stable country in the eurozone (a monetary and economic union of 17 European states) has just given their chancellor the green light to strengthen the eurozone's rescue fund via leveraging (using borrowed capital in return for an expected profit).
Germany, the leader of Europe's biggest economy, is headed to a high-stakes summit in Brussels with a strong mandate to seal a deal on Europe's increasingly unmanageable debt crisis after the parliamentary vote. But uncertainty remained over whether European leaders would be able to nail down a comprehensive plan to solve the debt crisis.
“The chancellor will travel to Brussels today bolstered by a clear and very broad mandate from the German Bundestag,” Peter Altmaier, the deputy parliamentary leader and chief party whip of Merkel’s Christian Democratic Union, said in an interview on Deutschlandfunk radio.
Merkel told lawmakers that the financial risk inherent in the 440 billion-euro ($612 billion) backstop is “acceptable,” and that bondholders must give Greece a bigger break to relieve the debt load at the heart of the turmoil sweeping Europe.
The principle goal of the summit is to lower Greece’s debt level to 120 percent of gross domestic product by 2020, according to the chancellor.
“That can’t be done unless the private sector bears a considerably higher share of the burden” than the 21 percent cut in Greek debt holding envisaged at a July 21 summit of European leaders, she said.
European officials are working on several plans at once — resolving Greece's debt situation, strengthening the continent's banks, which are expected to take deeper losses on their Greek bonds than they had planned, making sure other eurozone nations don't need bailouts and boosting the EU bailout fund itself.
"We have to take important decisions today," said Luxembourg Prime Minister Jean-Claude Juncker, who also chairs the eurozone's finance minister meetings. "But probably we will not be able to get all the smallest details in."
Merkel emphasized the gravity of the situation by telling the German parliament the world is watching to see whether Europe and Germany would take responsibility in “Europe’s most serious crisis since the end of World War Two," reports the Irish Examiner.
We will provide updates as they occur.
The Associated Press contributed to this story.