German MPs back Greek bailout but markets tumble
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German MPs have backed the bailout for crisis-hit Greece ahead of a meeting or eurozone leaders to endorse the package later Friday. But Greek borrowing costs have hit a record high, while stock markets in Europe and the US have taken a tumble.
Germany’s lower house, the Bundestag, has ratified the package, despite strong public opposition according to opinion polls. Germany is the biggest contributor to 110-billion-euro package, which is set to be agreed by eurozone leaders at the Brussels meeting Friday.
The bill must go to the upper house and President Horst Koehler before becoming law.
A group of eurosceptics say they will file an injunction against the move, arguing that it contravenes a law that says the country must have a stable currency, but the government is confident that the attempt will fail.
Greek bonds suffered a record slump, meaning borrowing became even more expensive for the government, on Friday. The yield on ten-year bonds rose to 11.308 per cent from 10.932 per cent late Thursday.
The Athens stock market lost 2.38 per cent on opening, while other European markets followed suit. Paris was down 1.5 per cent.
The falls follow panic on Wall Street on Thursday, with the Dow Jones index seeing its biggest fall since April 2009 at 3.2 per cent.
The drop was affected by poor US retail sales figures but, above all, by fears that Greece’s crisis will spread to other European countries, leading to a new recession combined with a crisis of the banking system.
The unease comes after thousands of Greeks have protested against the austerity measures attached to the bailout.
German Chancellor Angela Merkel and French President Nicolas Sarkozy called for reform of the euro in a joint letter on Thursday.
They advoacated closer budgetary supervision of member countries and more effective sanctions against countries who amass big deficits. That could mean suspending their right to vote on decisions on the joint currency.