Germany threatened to undermine this week's €130bn (£110bn) deal to bail out Greece by refusing to bolster the firewalls set up to prevent the eurozone debt crisis from spreading.

As markets dipped all over Europe amid fears that Greece would never be able to meet its debt obligations, Angela Merkel's chief spokesman said Berlin saw "no necessity" to enhance the planned €500bn European stability mechanism (ESM), the new bailout fund due to be in place from July.

Highlighting how unpopular aid for Greece is in Germany, opposition to the bailout deal was growing within Merkel's coalition on Wednesday. Several MPs from Merkel's conservatives and her junior partner, the Free Democrats (FDP), said they planned to oppose the package, meaning that she would be unlikely to win next week's parliamentary vote on the deal without the humiliation of relying on her socialist and green opponents .

Merkel's weakening domestic position came as her government's stance on the ESM left Germany at loggerheads with not only the Dutch government but also the IMF and its managing director, Christine Lagarde. Both want the ESM to embrace funds still untouched within the current rescue fund, the European financial stability facility (EFSF).

It has between €150bn and €250bn left, which would allow the combined funds to total €650-750bn – still well short of the €1 trillion originally forecast, let alone the €2tn demanded by market players. Lagarde favours at least €1tn being set aside – and has further ruffled Berlin by calling for eurobonds to cover not only Greek but also, for example, Spanish and Italian debt in event of a wider crisis.

The IMF managing director is refusing – before of next week's G20 meeting in Mexico – to commit the IMF to a specific share of the new €130bn bailout for Greece. Wolfgang Schäuble, the German finance minister, has said it would be €13bn – plus €10bn rolled over from the first €109bn rescue.

This would amount to just 10% of the new fund compared with the 27% the IMF contributed to the first one. The Washington-based body is under pressure from the White House to resist European demands for more funds.

Jan Kees de Jager, the Dutch finance minister, who helped broker the deal on Greece, has made his support for the package dependent on an enhanced EFSF/ESM combination.

Doubts over the proposed Greek bailout spread to the markets and sent shares lower on Wednesday. The FTSE 100 edged lower for the second day running, closing down 11.65 points at 5916.55 after Tuesday's 17-point decline in the wake of the overnight Greek deal. Germany's Dax was down almost 1%, while France's Cac was 0.52% lower. The Athens market fell nearly 6%.

Lee McDarby, at Investec Corporate Treasury, said: "Serious reservations about the ability of the Greek government to push through the required fiscal cuts have hampered any positive market reaction so far."

Meanwhile the cost of insuring peripheral eurozone government debt against default rose again, with five-year Italian credit default swaps up from 380 basis points on Tuesday to 392. This means it would cost £380,000 to insure £10m worth of Italian debt. Spanish CDS contracts rose from 365 to 372 basis points, while Greece climbed from 70 to 72 basis points, according to data monitor Markit. Greece's five-year bond yield also passed 56%.

The French Socialists' abstention in a parliamentary vote on the bailout fund also showed that a possible leftwing presidential election victory in May this year could derail the EU's eurozone rescue efforts.

The Socialist party, whose candidate François Hollande leads opinion polls for the April-May election, sat out Tuesday's lower house vote on the creation of a permanent ESM in protest at austerity policies in Europe.

President Nicolas Sarkozy's conservative government called the move a "historic error" and berated the Socialists in parliament on Wednesday. Even the left-leaning newspaper Libération was critical in an editorial.

The abstention, which did not prevent the bill passing in the conservative-led National Assembly, was in line with Hollande's campaign pledge to seek to amend an EU fiscal compact agreed last month to add clauses on growth and investment.

The European commission, meanwhile, flexed its new fiscal surveillance muscles by threatening to suspend almost €0.5bn in structural aid to Hungary for persistently breaching budget deficit rules.

Resources: Germany at odds with Dutch and IMF boss over eurozone bailout fund

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