Euro-countries seek compromise on bail-out funds
Eurozone countries are inching towards an agreement at the end of the week on raising the firepower of two bail-out funds to some €740 billion, with a higher amount deemed unrealistic given Germany and Finland's opposition.
Under the deal outlines, the temporary European Financial Stability Facility would be allowed to run in parallel for another year alongside the permanent European Stability Mechanism to be established on 1 July.
Dear EUobserver reader
Subscribe now for unrestricted access to EUobserver.
Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.
- Unlimited access on desktop and mobile
- All premium articles, analysis, commentary and investigations
- EUobserver archives
EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.
♡ We value your support.
If you already have an account click here to login.
"Any other move would never fly in the German parliament, even this one is tricky," German centre-right MEP Elmar Brok told this website on Saturday (24 March).
The EU commission last week circulated three ideas on how to increase the joint firepower of the two funds, currently capped at €500 billion, suggesting €940 billion as preferred option.
The middle ground - which Germany and other reluctant countries such as Finland may agree to on Friday during a meeting of EU finance ministers in Copenhagen - would subtract the €200 billion already committed by the EFSF to the Greek, Portuguese and Irish bail-outs.
"We're a bit sceptical how big the rescue fund should be," Finnish Prime Minister Jyrki Katainen told reporters on Saturday during a meeting he organised in Lapland with a handful of EU ministers and bankers.
"The firewall must be high enough, but not too high, which could destroy the confidence of the sustainable countries," he added, in reference to Finland's triple A rating - shared by only three other eurozone countries: Germany, the Netherlands and Luxembourg.
The European Central Bank, who sent German official Joerg Asmussen to the Lapland retreat, insisted that the firewall needs to be increased even though markets have calmed down for the moment.
"The ECB's position on this is clear. Even if the crisis is now a little bit calmer, we still think it's necessary to increase the European firewalls (so) that our international partners at the G20 will also do their (part)," Asmussen said.
Berlin so far has maintained that since borrowing costs for Italy and Spain have gone down and market confidence is returning after the ECB injected €1 trillion in cheap bank loans, there is no more need to commit extra money to the bail-out funds.
But EU economics commissioner Olli Rehn said there was "no room for complacency," adding: "We are for the moment in a milder recession, but it can be short-lived."
The same message came from Belgian finance minister Steven Vanackere, who pointed out that even if his country's borrowing costs dropped from 6 to 3.2 percent, it does not mean the need for a strong firewall is gone.
"Portugal dropped from 14 to 10 percent, which is still too high. Just because Belgium is distant from the firewall now, it doesn't mean we don't support an increase. We need a strong, convincing, credible firewall," he said during the Brussels Forum, a conference organised by the German Marshall Fund, a think-tank.
Klaus Regling, another German official in charge of the temporary EFSF, also said in an interview with Focus magazine published on Monday: "The majority of market participants do not believe in the end of the crisis and expect further ratings downgrades of states this year."
"More money would actually further calm the markets. Whether it's right or wrong, it is a fact. Big figures in the shop window create calm," he added.