• IS provokes sea-change

    It has been a grave mistake to defy both Russia and France, says Leopold Scholtz.

  • Nene's SAA nemesis

    No political figure seems to have the guts to speak out against Dudu Myeni, says Solly Moeng.

  • The mp3 revolution

    Ian Mann takes a look at the war between digital music and the compact disc.

All data is delayed
See More

Europe debates euro crisis fund boost

Jan 17 2011 13:27

Brussels - Debate raged in Europe on Monday over growing calls to beef up a debt rescue fund for struggling eurozone countries as Germany clashed with Brussels ahead of a meeting of finance ministers.

European Commission president Jose Manuel Barroso has pressed European leaders to take a decision to reinforce the fund within two weeks but eurozone paymaster Germany has resisted being rushed into it.

"Isolated proposals do not make the situation any easier, but rather more complicated," German Finance Minister Wolfgang Schaeuble told Deuschlandfunk radio ahead of the ministerial meeting in Brussels.

Schaeuble reiterated Berlin's position, saying he saw "absolutely no reason in the short term to debate" increasing the European Financial Stability Facility (EFSF).

Barroso has urged eurozone countries to move faster on the issue and has not hesitated to tell Berlin what he thought it should be doing.

"I expect top German politicians to respect the role of the commission. We in the commission have not only the right, but also the duty, to tell Europe's citizens what we think is right," he told Germany's Spiegel magazine.

The debate has ranged from calls to double the size of bailout funds to €1.5 trillion to a proposal to allow the system to buy debt from struggling eurozone countries in order to keep their borrowing costs down.

Germany insists that the €750bn financial safety net is large enough, saying only one-tenth has been used so far to rescue Ireland from a banking catastrophe in November.

But analysts have repeatedly warned that the funds would be too small to come to the rescue of bigger economies such as Spain, amid fears that Portugal could be next to fall into the financial abyss and drag its neighbour with it.

The safety net was created last year to protect the euro from market upheaval after Greece became the first eurozone country to be bailed out due to its huge public deficit and debt load.

The system combines the €440bn EFSF - a mechanism that borrows money backed by guarantees from the 17-member eurozone - plus €250bn from the IMF and another €60bn from the 27-nation EU.

But the EFSF's effective lending capacity is estimated at only €250bn as the fund borrows money on the markets and, in order to secure a top rating and low interest rates, it must keep part of funds raised in reserve.

The eurozone won some breathing room last week after Portugal and Spain successfully raised funds on the bond market, but analysts say their interest rates could still rise to levels that would require bailouts.

Although German officials oppose expanding the fund, Schaeuble has conceded that boosting the EFSF's effective lending capacity may be necessary.

Belgian Finance Minister Didier Reynders wants the safety net to be doubled and said he would raise the issue at the meeting of finance ministers, although no decision is expected.

French Finance Minister Christine Lagarde said one idea under discussion would allow the fund to buy the debt of struggling governments on the secondary market, relieving the European Central Bank from a role it has reluctantly taken.

The goal would be to keep the borrowing costs of countries in difficulty under control.

eu  |  portugal  |  ireland  |  spain  |  italy  |  greece  |  europe debt crisis



Read Fin24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Company Snapshot

We're talking about:


Marketing is a big concern in SA's small business community, followed by a lack of confidence and partnering with the wrong people, according to a survey.

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

The 25 basis points interest rate increase is:

Previous results · Suggest a vote