German Bundesrat (Upper House) Approves Europe Rescue Bill

The European TARP has formally passed. Yet liquidations still persist, as no short covering spree materializes on this much anticipated news, contrary to the strawman that CNBC tried to create.

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Germany’s upper house of parliament, the Bundesrat, which represents the 16 states, Friday passed a bill authorizing the country’s share of the financing in the EU rescue plan for fiscally troubled member states.

Given that Germany’s share of the loan guarantees will come out of the federal budget, the Bundesrat would have had only the right to temporarily delay the bill. But it did not object to the bill.

The lower house of parliament, the Bundestag, already approved the bill earlier today. It will now become law after having been signed by the German President.

EU finance ministers agreed earlier this month on a special fund to raise up to E440 billion over three years through a “special purpose vehicle” to aid fiscally troubled member states. Eurozone countries are to guarantee the loans, and the amount each country has to guarantee will be calculated based on its share in the capital of the ECB.

Germany’s share will be up to E123 billion in loan guarantees plus up to 20% on top of that in the case of “an unexpected and irrefutable need,” the government’s bill states. This means that Germany’s full share of the aid package could rise to around E148 billion in the worst case scenario.

However, should that need arise, the budget committee of the Bundestag would have to approve any loan guarantees beyond the E123 billion.

In its bill, the government points to a worsening of financing conditions in some EU member states over a very short period which cannot be explained by fundamental data.

“A further escalation of the situation would put the solvency of these states at risk and would lead to a serious danger for financial stability in the currency union,” it warned.