- Associated Press - Wednesday, October 26, 2011

BERLIN (AP) — Chancellor Angela Merkel won the support of German lawmakers to increase the firepower of the eurozone’s bailout fund Wednesday and indicated that private investors such as banks should take a write-down of at least 50 percent on their Greek debt holdings.

Mrs. Merkel, the leader of Europe’s biggest economy, headed to a high-stakes summit in Brussels with a strong mandate to seal a deal on Europe’s increasingly unmanageable debt crisis after winning a parliamentary vote 503-89, with four abstentions.

Yet uncertainty still remained over whether European leaders would be able to nail down a comprehensive plan to solve the debt crisis.

“The world is watching Europe and Germany; it is watching whether we are ready and able, in the hour of Europe’s most serious crisis since the end of World War II, to take responsibility,” Mrs. Merkel told parliament before the vote.

“It would not be justifiable and responsible not to take the risk,” she added. “I do not have a better alternative.”

The European Union already has bailed out three small eurozone members — Greece, Portugal and Ireland — but fears it cannot bail out the troubled economies of Italy and Spain, the third- and fourth-largest economies in the 17-nation currency bloc. It also knows that the first bailout for Greece was nowhere near big enough to keep the country from defaulting.

With that in mind, European officials are working on several plans at once: resolving Greece’s debt situation; strengthening the Continent’s banks, which are expected to take deeper losses on their Greek bonds than they had planned; making sure other eurozone nations don’t need bailouts; and boosting the EU bailout fund itself.

“We have to take important decisions today,” Luxembourg Prime Minister Jean-Claude Juncker, who also chairs the eurozone’s finance minister meetings, said in Brussels, “but probably we will not be able to get all the smallest details in.”

European Commission spokesman Olivier Bailly said it was too early to say whether there would be clear figures for write-downs on Greek debt or on the future firepower of the eurozone bailout fund, the lending capacity of which is now at 440 billion euros ($610 billion).

German opposition leaders briefed by Mrs. Merkel say changes would take the fund’s lending capacity above 1 trillion euros ($1.4 trillion), but that has yet to be finalized.

Another open question was whether Italy will be able to persuade its partners that it can get its economy back on track in return for help.

“Our Italian friends know exactly that we have to insist that tonight they tell us that we get important structural consolidation measures in Italy,” Mr. Juncker said. “That is a must.”

One key issue in Brussels will be renegotiating a deal made in July under which Greece’s private bondholders agreed to accept losses of 21 percent on their holdings of government debt. That is now seen by EU governments as too little.

Mrs. Merkel said the summit’s aim must be a solution that allows Greece to cut its debt load to 120 percent of gross domestic product by 2020.

“That won’t work without the private sector participating to a significantly higher extent” than was agreed to in July, Mrs. Merkel said.

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