Monday

13th Jul 2020

Schaeuble: German package of economic reforms imminent

  • German finance minister Wolfgang Schaeuble (l) has been at the forefront of Europe's response to the crisis (Photo: consilium.europa.eu)

German finance minister Wolfgang Schaeuble has indicated that a package of economic reforms to strengthen the EU's rescue fund, co-ordinate EU financial policy and help other member states limit their debts are set to be finalised by Berlin in the coming weeks.

"We want to prevent people from feeling that we are stumbling from one crisis to the next," Mr Schaeuble said in an interview published in the German Tagesspiegel newspaper on Sunday (23 January).

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Debate on how to overhaul the EU's temporary rescue fund - the €440 billion European Financial Stability Facility (EFSF) - has sharpened this month, with cash and guarantee buffers, designed to ensure a triple-A credit rating for EFSF bonds, restricting the fund's lending capacity to roughly €250 billion.

This, say many analysts, would be insufficient if the EU had to rescue a country such as Spain.

Eurozone finance ministers meeting in Brussels last week failed to agree on a mechanism to overhaul the fund's current design, with debate centering on an overall increase in 'size' versus an increase in the fund's effective 'lending capacity'.

Despite repeated denials from Berlin, Brussels and elsewhere, a more radical reform to enable the EFSF to buy back eurozone sovereign bonds is also being discussed.

Luxembourgish Prime Minister Jean-Claude Juncker, who chairs the monthly meetings of eurozone finance ministers, has said it would be a mistake to rule out this option, acknowledging at the same time that stronger EU economies such as Germany must not be asked to contribute too much.

"It would be wrong to create taboos [on the fund's reform], but we cannot overstretch the strong countries," Mr Juncker told Der Spiegel in an interview published on Monday.

The 'buy-back' idea, first raised by the European rescue fund's chief, Klaus Regling, met with general approval from eurozone finance ministers last week, reports the German magazine.

Berlin was quick to react to a pre-release of the interview however, insisting that the proposal will not be one of the measures on the table for agreement when EU leaders meet in Brussels for a summit this March.

The spring summit is scheduled to focus on plans to set up a permanent eurozone rescue fund, with the EFSF set to expire in 2013. A political agreement to tweak the EU's Lisbon Treaty was reached between leaders last December in order to establish the permanent fund.

Mr Juncker is among those who have been critical of German Christian Democrat leader Angela Merkel's response to the eurozone debt crisis so far, with his recent call for a common eurozone bond receiving little support from Berlin.

But the veteran politician saved his strongest criticism for Germany's junior coalition party, the Free Democrats, in the recent interview. "I am angry about the way in which some (FDP) liberals are now gambling away their European policy legacy," he said. "It is painful for me to see that some in the FDP are now flirting with a populist course."

Regional elections in Germany this year have ensured that the eurozone crisis remains a hot topic at the the domestic level, with many German voters concerned they could lose out as a result of loan guarantees to weaker peripheral EU states such as Greece and Ireland.

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