German MPs set to approve crisis-fighting tools

(BERLIN) - German lawmakers are expected to approve two key tools for battling Europe's debt crisis Friday after weeks of wrangling to ensure Chancellor Angela Merkel secures broad backing for the measures.

Under pressure from EU leaders to deliver solutions at a summit that starts Thursday, Merkel is scheduled to dash back from Brussels to address German MPs before they vote on the fiscal pact and permanent bailout fund.

Her speech to the Bundestag lower house of parliament, which is to begin sitting from 1500 GMT, will be followed by the 620 members voting on the pact which commits Germany and its partners to more budgetary discipline.

They must also approve the creation of the 500-billion-euro ($623 billion) European Stability Mechanism (ESM), the permanent rescue fund which is to take over starting next month from the European Financial Stability Fund.

Merkel warned Wednesday there were no "quick" fixes to the crisis that has roiled the eurozone for more than two years and acknowledged that "yet again", if not all eyes, then much attention would be on Germany.

Later on Friday, members of the Bundesrat upper parliamentary chamber representing Germany's 16 regional states are to decide on the two key texts, squeezing in their votes before the summer break.

Weeks of negotiations with the main opposition parties have allowed Merkel to count on their support, and thus for Germany to send a strong pro-Europe message to its partners.

The fiscal pact, of which Merkel was the main architect, entails changes to the German constitution and thus requires approval by a two-thirds majority of lawmakers in both chambers.

Signed by 25 of the European Union's 27 member states, the fiscal pact aims to enforce stricter budgetary rules and prevent excessive public deficits that touched off the eurozone turmoil.

The pact would take effect once 12 EU countries have ratified it, but so far that has occurred in just a handful of nations.

To obtain backing in Germany, Merkel has had to accept demands by the main opposition Social Democratic Party and Greens for growth measures, and secure the support of leaders in German states.

They called for measures to offset the impact on regional finances from new demands for budgetary rigour, winning pledges of aid and a programme for joint federal and state bonds to take effect next year.

The growth pact Merkel finally agreed with the opposition only commits Berlin to promote growth goals and says that Germany will push for a controversial tax on financial transactions.

Merkel also wants to win two-thirds majority backing for the ESM rescue fund, to which Germany will be the biggest contributor when the fund enters into force next month, to ward off possible future constitutional challenges.

However the government's wish to see both pieces of legislation ratified and signed off by the president before the start of the summer recess was dealt a small but surprise blow last week.

German President Joachim Gauck agreed to a request by the constitutional court to refrain from signing off on the two laws immediately after their parliamentary approval.

The court said it needed up to three weeks to examine a likely legal challenge to the fiscal pact and bailout mechanism threatened by the far-left Linke party.

The ESM, which was originally to begin operations on July 1, is now widely expected to be pushed back by at least a week because it cannot take effect without the ratification of Europe's top economy.

The Bundestag will have to meet again in the coming weeks, for two extraordinary sessions to approve financial aid for Spain and Cyprus.