Germany grudgingly backs Spanish bailout

FRANKFURT, GERMANY - Amid much griping, the German parliament voted on Thursday in favor of a plan to rescue Spanish banks, but only after the government of Chancellor Angela Merkel assured skeptical lawmakers that it was essential to the survival of the euro and that the Spanish government would remain responsible for repaying the money.

"Problems in the Spanish banking sector have become a danger for the European economy," Finance Minister Wolfgang Schauble said during a debate on whether to approve Germany's $35.5 billion share of the $123 billion fund. Without Germany's approval, the money could not be disbursed and Spain would risk a series of big bank failures.

The decision by the Bundestag, the lower house, addresses political sentiment in Germany, but leaves Spain bearing the ultimate financial responsibility for financing the rescue of banks burdened by bad real estate loans. Partly as a result, Spain's borrowing costs rose to levels considered unsustainable on Thursday because investors doubted the country could bear the burden.

The measure passed easily, by a vote of 473-97, but only after much complaining by members about the ever-growing cost of saving the euro. As the largest country in the eurozone, Germany must pay the largest share.

Frank-Walter Steinmeier, leader of the opposition Social Democrats in the Bundestag, said his party was supporting the measure only "because a refusal by Germany would be catastrophic."

"But this can't continue," he said.

The proceedings in Berlin illustrate once again how difficult it is for European leaders to win political support for measures that economists say are essential to survival of the common currency. Merkel had to work hard to win support just from members of her own coalition.

Under an agreement by European leaders in late June, bailout money could go directly to Spanish banks. But Germany, which because of its size has effective veto power over use of the funds, refuses to allow the bailout money to bypass governments until the European Central Bank assumes control of bank regulation for the eurozone, a move that is months away.

That means that Spanish banks and the Spanish government remain in a fatal embrace -- the banks damaged by their holdings of questionable government debt and confidence in the government's creditworthiness tarnished by the potential cost of a bailout. Partly as a result, the yield on 10-year Spanish bonds on Thursday rose above 7 percent, a level that economists say could eventually be more than the government can afford.