German parliament backs euro rescue fund

German lawmakers on Thursday approved an expansion of the euro-area rescue fund’s firepower, freeing the way for European officials to focus on what next steps may be needed to stem the debt crisis. The lower house of parliament passed the measure with 523 votes in favor and 85 against, granting the fund powers to buy bonds in secondary markets, enable bank recapitalizations and offer precautionary credit lines. It raises Germany’s guarantees to 211 billion euros ($287 billion) from 123 billion euros, according to Bloomberg. The bill’s passage by Europe’s biggest economy allows euro- area officials to weigh further measures to bolster Greece and stem investor concern that helped end the biggest three-day rally in 16 months for European stocks. Options include seeking further writedowns on Greek sovereign bonds, adding yet more firepower to the rescue fund and a plan to protect banks. Beefing up the fund bolsters defenses against the crisis, setting the stage for German policy makers to focus on Greece’s second bailout, Bloomberg quoted Holger Schmieding, chief economist at Joh. Berenberg Gossler & Co. in London as saying. Euro-area finance ministers will hold an extra meeting on Greece in October amid international concerns that a default could plunge the global economy into recession. Greece won''t be repay all of its debt and will have to leave the euro area, Otmar Issing, the ECB''s former chief economist, was quoted as saying by Stern magazine. The country needs to write down its debt by at least 50 percent, the German weekly quoted him as saying in an interview published today. Few hours before the approval of the expansion of a bailout fund, the euro rose toward a one-week high versus the dollar. The 17-nation currency strengthened against 12 of its 16 major counterparts. The yen weakened as Asian stocks reversed losses, spurring demand for higher-yielding assets. South Korea’s won declined after the nation’s current- account surplus shrank.