4:36pm UK, Thursday September 29, 2011

Tadhg Enright, business reporter

German politicians have voted overwhelmingly in favour of new rules to extend the powers of the £380bn eurozone bailout fund.

The plan, agreed by eurozone leaders on July 21, is to allow money in the European Financial Stability Facility (EFSF) to be spent on buying small amounts of government debt to prevent the need for full-scale bailouts of troubled members.

Germany’s parliament confirmed 523 MPs voted to back the proposal, 85 voted against it and 3 abstained.

The decision over the EFSF’s power now rests with the eurozone nations that have yet to vote: Austria, Cyprus, Malta, Estonia, the Netherlands and Slovakia.

In Germany, opinion polls suggest widespread opposition among the public and even MPs within Chancellor Angela Merkel’s ruling coalition had threatened to vote ‘No’.

That would have been a stinging blow for her authority – however a breakdown of the vote showed Mrs Merkel won approval with her own coalition majority.

“This is a strong statement of support for Angela Merkel,” said her parliamentary leader Peter Altmaier.

Around a dozen members of Mrs Merkel’s own party warned they would vote no

Mrs Merkel, Europe’s most powerful leader, is treading a difficult line.

She must placate an electorate that is growing increasingly weary of being asked to subsidise its wayward neighbours, while doing what needs to be done to preserve the euro project – whose failure would have devastating consequences across the continent.

Finland was the previous eurozone member to have ratified the enhanced EFSF, having done so on Thursday.

But deadlock remains over its support for the second 110bn-euro Greek bailout, which a eurosceptic party in its coalition government is threatening to block unless Athens offers collateral for the loans.

Live Blog: all the latest on the eurozone crisis

The European Commission nevertheless has said it is confident the plan will have been fully approved by the middle of October.

But even before they implement the plans (which were seen as radical back in July), eurozone leaders have been sent back to the drawing board to find an even more dramatic solution to the debt crisis.

A new strategy emerged after a meeting of the G20 group of the world’s biggest economies in Washington last Friday.

They set a deadline of November 3rd for a radical new plan to “save the euro”.

Athens is making further spending cuts – but meeting strong opposition from voters

Eurozone members have until then to shore up their banks so that they can cope with a default of up to 50% on Greek sovereign debt.

But a fresh wave of discord is emerging between Berlin and Washington over its suggestion to increase the spending power of the EFSF from £380bn to £1.7trn through ‘leverage’.

That would mean the money already in the fund would be used as security to borrow even more to add to it.

Germany’s finance minister, Wolfgang Schauble, has labelled it as “stupid” because it could push up borrowing costs for everyone else, including Germany.

Backers of the more radical route hope such statements are more of an electoral ploy than economic policy.