Berlin Seeks to Push Back New Euro-Crisis Aid Requests

The Wall Street Journal

By MARCUS WALKER

BERLIN—Progress on two of the euro zone's most pressing concerns—containing the crises in Greece and Spain—faces holdups up in Germany, where Chancellor Angela Merkel is reluctant to ask parliament to vote on measures that are likely to raise fierce opposition from within her own coalition.

Greece faces a funding shortfall that is likely to require more-generous financing from Germany and other euro-zone governments. But Ms. Merkel's aides are searching for a way to close the shortfall without asking German lawmakers for more money.

Spain's decision on whether to seek bond-market intervention by the European Central Bank, as financial markets are hoping, is also in limbo. That is partly because Germany has signaled that it doesn't want Spain to make the move.

In either case, any request for fresh bailouts would likely spur a bruising and politically damaging fight in Germany's lower house of parliament, the Bundestag. Such measures are likely to gain passage with the support of opposition parties. Still, the votes could split Ms. Merkel's center-right coalition ahead of German national elections in fall 2013. A growing number of conservative back benchers are opposed to further taxpayer aid for other euro members, particularly for Greece, which many German conservatives view as throwing good money after bad.

The government also fears that taxpayer aid for Spain would be hard to justify to lawmakers at a time when Spain is able to sell bonds comfortably to private investors, and that granting a Spanish aid request could prompt the market to train its sights on the next target, Italy.

If Ms. Merkel has to put new bailout measures to the Bundestag, she will try to do it in one go, German officials say. "We can't go to the Bundestag again and again. We have to bundle these questions," one of the officials said. In addition to further aid for Spain and Greece, Cyprus is expected to seek a bailout, which would also need Bundestag approval.

Berlin officials have alerted their counterparts in France to their need to bundle bailout measures into a single package to minimize a Bundestag backlash, according to two French officials. To accommodate Ms. Merkel, French President François Hollande has agreed to tone down France's demands that Spain apply soon for aid, these officials say.

The government's wait-and-see approach carries risks, some German officials concede. The present calm in euro-zone financial markets could be short-lived if investors see that political obstacles could keep Spain or Italy from benefiting from ECB bond-market support. Also, shoring up investors' confidence could prove harder and more expensive if euro-zone governments and the ECB intervene only when the next wave of panic threatens Spain's bond market.

The Bundestag is likely to continue to approve euro-zone aid requests, as it has done on all occasions since Greece first secured a bailout in May 2010, thanks to the support of left-leaning, euro-friendly opposition parties. But Ms. Merkel's lack of a majority in her own conservative camp for euro-zone bailouts—evident in several Bundestag votes over the past year—is politically embarrassing and threatens to increase the divisions within her fractious government. Many lawmakers in Ms. Merkel's junior coalition partners, the free-market Free Democratic Party and the conservative Christian Social Union, are hostile toward further loans for Greece and skeptical about ECB purchases of Spanish bonds.

The chancellor's coalition is already squabbling over a number of domestic issues, from expanding family benefits to quotas for women on company boards. Fresh fighting over Europe could damage the government ahead of German national elections in fall 2013, officials fear.

Although the ECB's offer in August to prop up teetering euro-zone bond markets has boosted markets' confidence that the euro will survive, the currency bloc's list of unresolved questions remains long.

In addition to Greece, Spain and Cyprus, Portugal is likely to need a fresh bailout by next year and is facing a popular backlash against austerity measures. Slovenia's worsening finances are raising concerns that it, too, will need help.

Germany and France are struggling to overcome their differences on how to turn the ECB into the euro zone's banking supervisor, while European officials are worried about the political course that Italy might follow after reformist Premier Mario Monti steps down next spring.

Ms. Merkel could come under pressure from other leaders to resolve the Greek and Spanish questions at the European Union's next summit in Brussels on Oct. 18. But a crucial report by international inspectors on the state of Greece's finances might not be ready by then, and the debate over how to keep Greece afloat could continue into November, Berlin officials say.

Germany is openly discouraging any quick aid request from Spain. German Finance Minister Wolfgang Schäuble repeated his view on Friday that Spain doesn't need further financial aid. "Spain needs no program because it is already doing the right things and will be successful," he told reporters in Berlin.

To trigger ECB intervention in its bond market, Spain would first have to apply for a precautionary credit facility from euro-zone governments' bailout funds, which would oblige Madrid to sign a memorandum on economic reforms, the implementation of which would be monitored by inspectors from the EU and the International Monetary Fund.

Spain's government under Prime Minister Mariano Rajoy hasn't yet made a firm decision on whether to apply for aid. It is in talks with EU officials to work out the policy conditions that would be attached to any aid.

Spain is trying to negotiate lenient conditions that don't go beyond its own overhaul efforts, to minimize the political loss of face that such a memorandum would involve. Spain is already due to receive tens of billions of euros in a separate loan package to recapitalize its ailing banks.

—David Gauthier-Villars contributed to this article.

Write to Marcus Walker at marcus.walker@wsj.com