–Adds Comments From Govt Press Conference To Story Sent At 11:04 GMT

BERLIN (MNI) – The German government’s cabinet on Tuesday approved
the country’s share of the financing in the recently agreed EU aid plan
for fiscally troubled member states.

Government spokesman Christoph Steegmans said the EU measures “send
a clear signal that financial markets can count on the financial
stability of the Eurozone and that speculation against the Eurozone
won’t pay off.”

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 bill states. This means that Germany’s full share of the aid
package could rise to around E148 billion in the worst case.

However, should the need arise, the budget committee of the
Bundestag, the lower house of parliament, would need 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,” the government warned.

EU finance ministers agreed Monday 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.

German government spokesman Ulrich Wilhelm acknowledged on Monday
that “there exists the possibility that not every state will be able to
participate in these bilateral guarantees.” Thus, the share of loans
Germany will have to guarantee might rise above the basic quota, he
said.

Finance Ministry spokesman Michael Offer said today the bill could
already be approved by both houses of parliament on Friday next week if
the Bundesrat, the upper house representing the 16 states, agrees to
bring forward its next scheduled session from June 4.

German Chancellor Angela Merkel’s CDU/CSU-FDP coalition controls a
majority in the Bundestag, but on Sunday lost its majority in the
Bundesrat when her camp was defeated in state elections in North
Rhine-Westphalia.

However, it is unlikely that a new state government in North
Rhine-Westphalia will already be formed by Friday next week. That means,
if a vote would already take place next week, Merkel could still bank on
a safe majority in the upper house.

Moreover, Germany’s share of the loan guarantees for financially
troubled Eurozone countries foreseen under the European aid package will
come out of the federal budget. The Bundesrat can only delay federal
budget bills but not block them indefinitely.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

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