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Germany backs euro aid, stocks tumble

German lawmakers approved on Friday a $1 trillion safety net to stabilise the euro as world stocks slid further on fears Europe’s debt crisis and tougher financial regulation will choke recovery.

business Updated: May 21, 2010 23:28 IST

German lawmakers approved on Friday a $1 trillion safety net to stabilise the euro as world stocks slid further on fears Europe’s debt crisis and tougher financial regulation will choke recovery.

The Bundestag (lower house) approved Berlin’s contribution of up to 148 billion euros ($183.8 billion) in loan guarantees, deeply unpopular with voters, on top of an equally divisive 22.4 billion euro contribution to a package for debt-ridden Greece.

The bill passed by 319 votes to 73 with 195 abstentions after the opposition Social Democrats opted to abstain. The upper house (Bundesrat) was due to approve it later on Friday.

The vote brought no relief for European shares, which extended losses to 2 per cent on the day after Asian stock markets slid again. Japan’s Nikkei average closed 2.5 per cent down for a loss of 6.5 per cent on the week, mostly driven by worries about the euro zone.

Chancellor Angela Merkel’s centre-right government failed to rally broad cross-party backing to ease public opposition to bailing out weaker euro zone states despite stunning markets this week by unilaterally banning speculative trades in some financial instruments.

Wednesday’s ban sent stocks and the euro plunging and drew sharp criticism from EU partners, including close ally France, which were not consulted.

The leaders of Germany and France pledged on Thursday to work together to solve the European debt crisis, support the euro and press jointly for global financial regulation.

European finance ministers and policymakers also discussed tightening the bloc’s tattered budget discipline rules and improving economic policy coordination in the 16-nation euro zone at a task force meeting in Brussels. Berlin wants harsher sanctions on deficit sinners and an unprecedented insolvency procedure for states crippled by debt.

The talks are sensitive because some euro zone countries oppose a European Commission proposal to scrutinise member’s budget plans before they are submitted to their own parliaments, seen as a threat to national sovereignty.