German parliament okays rescue package for Spanish banks

The German parliament has overwhelmingly approved a 100 billion-euro ($122 billion) financial rescue package to shore up Spain’s distressed banks.

The Bundestag, the lower house of the parliament, which was recalled from its summer break for an emergency session on Thursday, passed with 473 votes a legislation on the euro zone’s first bailout package for debt-laden Spain.

The bill was opposed by 97 deputies while 13 abstained.

The vote will clear the way for euro zone finance ministers to finally release the rescue package in a conference call on Friday.

The first tranche of around 30 billion-euros from the temporary bailout fund, the European Financial Stability Facility (EFSF), is expected to be made available by the end of this month.

Germany is the largest contributor to the EFSF and its approval is crucial to release the assistance earmarked for Spain.

The euro zone finance ministers, on June 9, offered Spain rescue loans up to 100 billion-euros to prop up the country’s banks, which were crippled by huge debts accumulated as a result of the property market collapse and the recession that followed.

The Bundestag was widely expected to endorse the rescue package with a large majority as the opposition, Social Democratic Party (SPD), and the Green party had pledged to vote for it.

However, several “rebel” MPs in the Chancellor Ms Angela Merkel’s centre-right ruling coalition carried out their threats to vote against or to abstain and thereby denied her symbolically important “coalition’s majority” for the fourth time in a crucial vote.

The entire parliamentary group of the opposition Left party voted against the legislation.

Ahead of Thursday’s vote, Spain was forced to pay higher interest rates to raise 2.98 billion euros on the financial markets, indicating that investors remained concerned about the health of euro zone’s fourth largest economy.

Spain’s borrowing costs for seven-year bonds rose to 6.7 per cent, which is seen as unsustainable in the long term.

This raised new fears that the Spanish state, which is struggling to cope with four years of economic downturn and around 50 per cent unemployment among the youth, also may be forced to seek a bailout.

A solution to the Spanish banking crisis is necessary to avert the crisis endangering the financial stability of the entire euro zone, the German Finance Minister, Mr Wolfgang Schaeuble, said in a statement after the vote.

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