Euro Leaders Push for €1 Trillion Permanent Rescue Fund
Euro-zone finance ministers meeting in Brussels on Monday made progress toward establishing a permanent rescue fund, the European Stability Mechanism, which will have an effective lending capacity of 500 billion euros and replace the temporary European Financial Stability Facility.
Ministers were able to complete most of the details of the permanent fund, which should be “in place and operational” by July, said Olli Rehn, the European Union’s commissioner for economic and monetary affairs. Member states must still ratify the agreement.
Ministers cleared a major obstacle Monday night when they found a way to ease Finland’s concern that it would incur additional liabilities without first giving consent.
International Monetary Fund Director Christine Lagarde also suggested on Monday that the 440 billion-euro EFSF, a temporary bailout fund established in 2010……be rolled into the new 500-billion euro permanent fund. The EFSF has so far been used to bail out Ireland and Portugal and will be used to provide part of the second, 130 billion-euro package for Greece.
“I am convinced that we must step up the fund’s lending capacity,” to help defend “innocent bystanders” elsewhere in the world who are hurt by the euro contagion, said Lagarde. “A global world needs global firewalls.”
German Chancellor Angela Merkel said she wanted to see the new fund, which would be less exposed to downgrades by ratings agencies than the existing EFSF, put into operation quickly, adding that Germany is willing to speed up its share of payments.
Italian Prime Minister Mario Monti and and Lagarde both think the ceiling on the ESM should be raised, possibly up to 1 trillion euros, but Germany insists that the combined outlay of the ESM and EFSF should not exceed 500 billion euros. The Financial Times reported on Monday that Merkel was ready to see the fund’s ceiling raised to 750 billion euros in exchange for agreement on tighter euro-zone budget rules, but that report was immediately denied by her chief spokesman.
After Monday’s meeting, Monti told reporters that no conclusions had been reached on the ESM, which must be backed by all 17 euro nations in a new treaty. Officials said the details would be finalized by an EU summit on January 30, when they also hope to reach an agreement on the “fiscal compact,” which also involves a new treaty.
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