German lawmakers' approval of an expansion of the euro-area rescue fund's firepower handed Chancellor Angela Merkel a victory that paves the way for additional steps to stem the European debt crisis.

The next moves may include leveraging the 440 billion-euro ($599 billion) European Financial Stability Facility, said Holger Schmieding, chief economist at Joh. Berenberg Gossler & Co. in London. In addition, there may be "an orderly Greek default later this year, with a haircut on Greek debt, an immediate recapitalization of Greek banks, European guarantees for restructured Greek debt and conditional fiscal support" for Greece, he said.

The lower house of parliament passed the measure with 523 votes in favor and 85 against, granting the EFSF powers to buy bonds in secondary markets, enable bank recapitalizations and offer precautionary credit lines. It raises Germany's guarantees to 211 billion euros from 123 billion euros.