BERLIN – The German parliament has given wide backing to plans to increase the firepower of the eurozone's rescue fund.
Lawmakers voted 503-89 with four abstentions in favor of leveraging the euro440 billion ($610 billion) bailout fund to make it more effective. That sends Chancellor Angela Merkel to a European Union summit in Brussels Wednesday with a strong mandate to seal a deal.
Opposition leaders briefed by Merkel have said the changes would take the fund's lending capacity above euro1 trillion, though that isn't finalized.
She indicated that private investors should take a writedown of at least 50 percent on Greek debt holdings.
Europe has already bailed out three small eurozone members -- Greece, Portugal and Ireland -- but fears it cannot bail out the troubled economies of Italy and Spain, the third and fourth largest economies in the 17-nation currency bloc. It also knows that the first bailout for Greece was not close to big enough to keep the country from defaulting.
With that in mind, European officials are working on several plans at once -- resolving Greece's debt situation, strengthening the continent's banks, which are expected to take deeper losses on their Greek bonds than they had planned, making sure other eurozone nations don't need bailouts and boosting the EU bailout fund itself.
"We need a deal tonight and we need political agreement to the key aspects that are on the table," European Commission spokesman Olivier Bailly said in Brussels.
However, he added that it was too early to say whether there would be clear figures for writedowns on Greek debt or on the future firepower of the eurozone bailout fund, whose lending capacity is now at euro440 billion ($600 billion).
German opposition leaders briefed by Merkel say changes would take the fund's lending capacity above euro1 trillion ($1.4 trillion), but that has yet to be finalized.
Another open question was whether Italy will be able to convince its partners that it can get its economy back on track in return for help.
One key issue in Brussels will be renegotiating a deal made in July under which Greece's private bondholders agreed to accept losses of 21 percent on their holdings of government debt. That is now seen by EU governments as too little.
Merkel said the summit's aim must be a solution that allows Greece to cut its debt load to 120 percent of gross domestic product by 2020.
"That won't work without the private sector participating to a significantly higher extent" than was agreed in July, Merkel said.
She didn't spell out how much banks and other bondholders should contribute. But according to Greece's international creditors, a cut of 50 percent on Greek bonds now would take the country's debt to just above 120 percent of GDP.
Greece's debts are set to spiral above an estimated 180 percent of economic output next year.
But Merkel insisted that cutting Greece's debts alone won't solve the country's economic problems.
"Painful and necessary structural reforms must be implemented," she said.
She added that a "permanent surveillance" of Greece would therefore be "desirable." Athens' financial reform efforts have been monitored every three months by inspectors from the European Union, European Central Bank and International Monetary Fund since it received a bailout in May 2010. Greece has opposed calls for a permanent surveillance mechanism.
Merkel didn't mention Italy, where Premier Silvio Berlusconi averted a government collapse to clinch an overnight deal on emergency growth measures demanded by the EU.
Berlusconi and coalition partner Umberto Bossi reached a compromise on raising Italy's pension age -- a point of disagreement that had threatened Berlusconi's leadership.
While pressing the private sector on Greece, Merkel stressed the need for Europe to also make sure the crisis doesn't spread yet further, saying that recapitalizing troubled banks is "absolutely necessary."
"Anyone who wants private creditors to participate in debt sustainability must also ensure that a screening off, a protection against the danger of contagion is decided at the same time," Merkel told lawmakers. "Anything else is simply irresponsible."
The EU summit will consider plans to boost the euro440 billion ($610 billion) Financial Stability Fund, or EFSF, by offering government bond buyers insurance against possible losses and attracting capital from private investors and sovereign wealth funds.
Germany's government decided to put that move to a vote in parliament, and thrashed out a joint resolution with two of the three opposition parties. Germany, as the largest economy in the 17-nation eurozone, will be paying out a large share of the bailout money.
The risks Germany will shoulder are "justifiable," Merkel said.
"I'll even go a step further and say that it would not be justifiable and responsible not to take the risk," she added. "I do not have a better alternative."
In her speech, Merkel stressed that the EU must be prepared to overhaul its treaties to overcome the crisis for good and ensure a better functioning of the eurozone's 17 nations and the EU's 27 members.
A future treaty must allow that eurozone countries not living up to their fiscal and budgetary responsibilities under the bloc's growth and stability pact be taken to the European Court of Justice, she said.
Wednesday's joint resolution underlines the German parliament's expectations that, once the changes are implemented, the European Central Bank will no longer need to buy government bonds, as it has since last year -- a move that has caused concern in Germany.
With eurozone politicians disagreeing over how to calm the debt crisis, the ECB has taken on the role of firefighter by buying up the bonds of financially weakened governments on the open market. That keeps the bond prices up and the interest rates down, allowing troubled European countries to borrow on financial markets at lower rates than they otherwise could.
The ECB has bought euro169.5 billion ($236 billion) in government bonds since mid-2010.