By Simon Miller
Germany’s finance minister Wolfgang Schäuble has produced draft plans to give the European Finance Stability Facility (EFSF) independent powers to help out indebted eurozone countries.
Schäuble proposes that the German Bundestag would grant authorisation to perform rescue operations for indebted countries with decisions taken by the executive board of the EFSF
The 41-page document, seen by German newspaper Handelsblatt, was sent exclusively to five German leaders on Sunday with Schäuble urging that “with the sensitivity of the negotiations on the EFSF, the absolute confidentiality of these documents should be ensured given the current market conditions”.
The framework agreement also gives the fund the powers to buy bonds of ailing euro countries in the financial markets as well as directly from governments to be held for maturity or sold.
In addition, the EFSF would be able to help in the form of a standby credit line with pricing, political conditions, terms and conditions set out by the executive board.
As a result, the “super-authority” could independently award loans up to €780bn( £681.3bn) - an increase of €340bn - even though the liability would be held by all eurozone countries. The loans will be covered by all eurozone countries with Germany liable for €211bn according to the leaked plans.
If accurate, the paper is likely to be explosive as politicians would see this as a further erosion of fiscal sovereignty as the Bundestag would only be able to approve the EFSF framework contract. There would no longer be the mechanism for individual countries to vote on rescue packages, in effect shifting budgetary law to Brussels.
The government wants to be able to present plans to the parliament by 23 September, two weeks after the German Constitutional Court rules on the legality of the bailout plans.
As a sop to German politicians, Tuesday evening saw the Chancellor Angela Merkel promise a tough austerity course in the eurozone and repeated the promise of a national debt brake. In addition, Merkel told the Union parliamentary group that the European Court of Justice could be brought in to examine breaches of the European stability and growth pact and the court would be able to demand budgetary changes.
Last week, Merkel and French President Nicolas Sarkozy presented a plan which would involve a debt brake and the introduction of austerity measure within the eurozone.