Euro zone ministers boost bloc’s firewall to $1TN
Eurogroup Chairman and Luxembourg Prime Minister Jean-Claude Juncker (L) speaks with Austrian Finance Minister Maria Fekter at the start of the European Union Economic and Financial Affairs Council (ECOFIN) meeting in Copenhagen on March 30, 2012.
LONDON, UK – Euro zone finance ministers meeting in Copenhagen have agreed on a temporary increase in the size of the 17-member currency bloc’s rescue funds.
The joint lending power of the bloc’s “firewall” – the permanent mechanism to bail out struggling euro zone economies – is to be boosted from €500 billion to €800 billion ($1.1 trillion), Austrian Finance Minister Maria Fekter said Friday, according to Reuters.
Two rescue funds – the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM) – are to be combined for one year to make more money available in the case of emergency.
The ESM was originally intended to be a permanent replacement for the EFSF, but the two funds will now overlap from the middle of 2012.
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“Obviously markets will only have confidence in us if we agree on a strong rescue fund,” Belgian Finance Minister Steve Vanackere told reporters.
“We can’t consider the crisis is over. We must find a good middle way between those who seek a [maximum] firewall and those who want it kept to a minimum.”
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While the €800 billion ceiling is much higher than the half a trillion euro limit agreed last year, it still falls short of the €1 trillion fund global institutions like the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) say is necessary to calm financial markets and spur growth, the Associated Press reports.
Earlier this week OECD Secretary General Angel Gurría told reporters in Brussels that the “the mother of all firewalls should be in place” to impress fragile markets in the context of weak euro zone banks, rising debt levels and ambitious fiscal targets.
According to the BBC, German Chancellor had initially favored only a modest increase in the euro zone’s bailout capacity to €700 billion, although her finance minister, Wolfgang Schaeuble later mentioned a figure of €800 billion, suggesting Germany had accepted some of its partners’ concerns.
Euro zone countries like France were thought to support a big increase in order to prevent financial contagion and ensure that bigger countries within the bloc are not drawn back into the crisis.
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