Unpopular policies

German Chancellor Angela Merkel tried to soothe growing dissent within her parliament on Wednesday ahead of a crucial vote on legislation to expand the European Union rescue fund.

In the German daily newspaper Bild, Merkel was quoted as reassuring her coalition that a new EU bailout for Athens would not be wasted, insisting that the risk of a Greek default was "close to zero."

Ever-cautious, the chancellor admitted, however, that the second Greek bailout package might still have to be renegotiated.

In an interview with Greece's ERT television, Merkel said the terms of the 109-billion-euro ($148 billion) package could be altered once the findings of an international assessment of Athens' recent austerity measures are released.

The audit team from the European Union, the European Central Bank and the International Monetary Fund, known as the troika, is expected to begin talks in Athens on Thursday.

"So we must now wait for what the troika finds out and what it tells us: Do we have to renegotiate or do we not have to renegotiate?" Merkel said, adding she could not "anticipate the result of the troika."

Eurozone finance ministers are poised to hold a special meeting in October once the troika has reviewed Greece's progress towards its strict budgetary targets. They will decide whether Greece can receive the next round of its bailout, worth some 8 billion euros.

Domestic turmoil

Merkel's comments came ahead of a vote in the Bundestag over expanding the scope and size of the European Financial Stability Facility (EFSF) on Thursday. If parliament approves the legislation, Germany's contribution to the fund could increase to 211 billion euros from 123 billion euros.

Although broad approval of the changes look assured, with two opposition parties saying they will vote in favor, a number of Merkel's coalition allies have said they plan to vote against her.

In a trial vote taken by the Merkel's Christian Democrats and their Bavarian CSU allies on Tuesday, 11 voted against expanding the EFSF and two abstained. Within the Free Democrats, Merkel's coalition partner, there are also estimates of between two and five 'no' votes and up to six abstentions.

A failure to muster support from her coalition allies would raise the risk of further opposition on two other crucial votes in the coming months - on the second Greek rescue package and the successor to the EFSF, the European Stability Mechanism. Reliance on the support of the center-left opposition would also be considered embarrassing for the chancellor.

Ten of the 17 eurozone countries have so far ratified the expansion of the EFSF in their respective parliaments (Belgium, Finland, France, Greece, Ireland, Italy, Luxembourg, Portugal, Slovenia and Spain). With Germany voting on Thursday, and Estonia and Austria also expected to vote this week, that leaves just four nations to ratify the plans in October (Cyprus, Malta, the Netherlands and Slovakia).

'EU's greatest challenge'

European Commission President Jose Manuel Barroso insisted in his annual state of the union address to the European Parliament on Wednesday that Greece "is, and will remain, a member of the euro area."

He said it is crucial for the bloc's 27 member states to unite in the face of the ongoing debt crisis. Without "more unification," Barroso said, there will be "more fragmentation."

Author: Charlotte Chelsom-Pill, Joanna Impey (AFP, AP, dpa, Reuters)
Editor: Martin Kuebler