Wednesday

11th Dec 2019

Berlin still against boosting eurozone firewall

  • The Bundestag is to vote on 27 February on the second Greek bail-out (Photo: BriYYZ)

Germany has indicated it remains against boosting the eurozone's bail-out funds, despite it being the expected quid pro quo after 24 other EU member states signed up to the Berlin-pushed 'fiscal compact treaty - but its position may change after a key vote in the Bundestag end of February.

Eurozone finance ministers meeting in Brussels on Monday (20 February) are set to discuss the possibility of raising the ceilings of two bail-out funds, the temporary European Financial Stability Facility (EFSF) and the upcoming permanent European Stability Mechanism (ESM).

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EU leaders in December agreed to come back to the issue on 1-2 March during a summit, pending the agreement on an inter-governmental treaty on fiscal discipline, demanded by Germany.

EUobserver understands that Germany is still against expanding the funds and is saying it will maintain this position in March, arguing that "market conditions have improved" since December and there is no need to increase the funds' firepower.

A compromise solution, as indicated by the German member of the European Central Bank, Joerg Asmussen, would be to scrap the provision capping their joint ceiling at €500bn. The EFSF - which was used in the Portuguese and Irish bail-outs and should be used for the second Greek aid package - would still have some €250bn left when the ESM comes into force, on 1 July.

"In this way, we could reach €750 billion," Asmussen told the Financial Times Deutschland, noting the ECB would support this approach.

Asmussen explained that it was very unlikely for emerging countries to agree to boost the resources of the International Monetary Fund at a meeting of G20 finance ministers later this month in Mexico City unless the eurozone signals it is willing to contribute first.

"Many non-European G20 states expect the Europeans to first build their own firewall and raise it, rather than other funds flowing into it again from outside Europe," Asmussen said.

But even €750bn would be insufficient to stem the eurozone debt crisis, one economist said.

"The €750bn figure is more than €500bn and it would send a stronger message, but its still not sufficient," Carsten Brzeski from ING Bank told this website.

He pointed out that it would take €1 trillion for Italy and Spain - the eurozone's third and fourth largest economies - to stay outside the markets if their borrowing costs reached bail-out territory.

The German position may change after a key vote on 27 February when the second Greek bail-out will have to pass through the Bundestag, he added. "It would be premature and overburdening national legislation to say 'here is the second Greek package plus we want to increase the EFSF/ESM ceiling," Brzeski said.

This is also consistent with Germany's strategy of always "postponing and taking baby steps" when confronted with demands for more cash, he added.

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