Angela Merkel faces big test in German EU bailout vote

German Chancellor Angela Merkel held talks with Greek PM George Papandreou in Berlin this week

German Chancellor Angela Merkel faces a major test of her authority, as MPs vote on whether to approve new powers for the EU's main bailout fund.

She faces a rebellion from some of her coalition who fear bailing out Greece is throwing good money after bad.

Meanwhile in Athens, fresh strikes by public sector workers are planned.

The strikes come as international inspectors resume talks with the Greek government to decide whether it has done enough to receive more funds.

If more than 19 members of Mrs Merkel's coalition rebel against her, she will have to rely on the support of the centre-left opposition to pass the bill on new powers for the European Financial Stability Facility (EFSF).

The BBC's Gavin Hewitt in Berlin says that although the bill will be passed, Mrs Merkel could emerge weakened, unable to hold her coalition together at a critical moment in the eurozone crisis.

Mrs Merkel's Christian Democrats (CDU) and their allies have been pressuring the handful of dissidents to get in line before the vote at 11:00 (09:00 GMT).

There have been last-minute talks and much arm twisting, our correspondent adds, but the expectation is that it will be a close result.

"We are working to convince people," CDU deputy leader Hermann Groehe told Reuters.

The vote is on whether to endorse a eurozone commitment to boost bailout guarantees to 440bn euros (£383bn).

That figure is already being dismissed as inadequate in the light of the worsening Greek crisis and the threat of it spreading to others economies.

Chancellor Merkel has said she believes the vote is about Germany demonstrating its determination to save the euro.
She has tried to assure coalition members that German taxpayers' money would not be wasted by voting on a new bail-out for heavily indebted eurozone countries.

However, she cannot rule out that the money might be written off if Greece defaults.

Eurozone members are in the process of ratifying proposals put forward over the summer to give the EFSF greater powers.

Separately, eurozone governments also gave their backing to a debt swap deal that would see private lenders agree to write off about 20% of their loans to Greece.

However, as Greece seemingly nears default and the debt crisis increasingly threatens to envelop Italy, a consensus has emerged in the past days that the current deal being voted on by the Bundestag does not go far enough.

G20 leaders met over the weekend to discuss the best way forward, but EU officials stressed that no grand plan of action had been agreed.

Among the ideas reportedly discussed were a much deeper, 50% write-down of Greece's government debts, and strengthening the big European banks.

There were also rumours of a possible deal to increase the firepower of the bailout fund from 440bn euros to as much as 2tn euros, sparking the strong rally in markets seen earlier this week.

However, the idea of boosting the EFSF is deeply unpopular with Chancellor Merkel's coalition partners, the liberal FDP. Late on Tuesday, Finance Minister Wolfgang Schaeuble scotched the plan, calling it "a silly idea".

In Greece itself, taxi drivers, hospital workers and other public sector staff will strike on Thursday, angered by the announcement of new austerity measures including pension cuts and a new property tax.

Deputy Prime Minister Theodoros Pangalos has said even he will be unable to pay the new tax without selling property. He said that the country's ability to pay extra taxes had been "exhausted for some time".

Inspectors from the "troika" - made up of the European Commission, European Central Bank (ECB) and International Monetary Fund (IMF) - have returned to Athens to decide whether the government has done enough to receive another 8bn euros (£6.9bn) of loans.

Without the new loans - laid out under the terms of a bailout agreed last year - Greece will soon run out of money.

New taxes have been approved and deeper spending cuts have been promised, but some decisions have been delayed and privatisation is running behind schedule says the BBC's Chris Morris in Athens.

Many people believe that austerity measures are pushing Greece's crippled economy deeper into recession and strangling any chance of growth.

On Wednesday, European Commission president Jose Manuel Barroso warned Euro-MPs that the EU was facing its "greatest challenge".
In his annual State of the Union address, he urged patience over the Greek debt problem, insisting Greece would remain in the euro.

His speech triggered a rise in markets, but those increases could fall back if talks in Athens on Thursday end in deadlock.

Greek Prime Minister George Papandreou, speaking in Berlin earlier this week, promised that Greece would keep its promises on implementing unpopular austerity measures in return for continued support from eurozone partners.

There was more bad news for the eurozone on Wednesday when Attila Szalay-Berzeviczy, global head of securities services at Italy's biggest lender UniCredit SpA, said the euro is "practically dead".

In an article for a Hungarian news website, Mr Szalay-Berzeviczy said Europe faced a financial earthquake from a Greek default.

Greek protesters say austerity measures are making the country's crisis worse

"The euro is beyond rescue," he said.

"The only remaining question is how many days the hopeless rearguard action of European governments and the European Central Bank can keep up Greece's spirits."