EU discusses rescue fund, Berlin eyes package deal
By Annika Breidthardt and John O'Donnell
BRUSSELS | Mon Feb 14, 2011 11:15am EST
BRUSSELS (Reuters) - European finance ministers assessed ways of strengthening their 440 billion euro rescue fund on Monday, but
Germany remained reluctant to bolster the facility without commitments on closer economic coordination.
Monday's talks are supposed to prepare the ground for a "comprehensive package" of measures European leaders are hoping to agree in late March to resolve the year-long debt crisis.
While there is no consensus yet on all potential changes, the
euro zone appears to be coming close to an agreement that the rescue fund -- the European Financial Stability Facility (EFSF) -- should be made stronger and more flexible.
"The most important thing is to make sure the 440 billion can be used, give it a little bit more flexibility to operate on the market and I think there should be political consensus around that," Luxembourg Finance Minister Luc Frieden said.
The EFSF has euro zone government guarantees for up to 440 billion euros ($596 billion), but its effective capacity is only about 250 billion because of guarantees built into the fund.
That sum could be insufficient to bail out more than two countries if both Portugal and potentially Spain were to follow
Greece and Ireland in needing a bailout.
To increase the effective lending capacity, euro zone countries are considering either raising their guarantees for the fund or raising guarantees and injecting cash into it.
NO DECISIONS ON MONDAY
Ministers will also explore making the fund more flexible, which could include allowing it to buy the bonds of distressed countries, or other similar steps.
The ministers are to narrow down the number of options on the table, but make no final decisions.
"We will have no decisions today, but we have said it will have to be a complete package with all three elements: the competitiveness pact, the ESM (European Stability Mechanism) agreement and the EFSF by the end of March," German Finance Minister Wolfgang Schaeuble said on entering the meeting.
EU leaders are to meet on March 24-25 to strike a deal on the comprehensive package of steps. Schaeuble repeated the German position that no increase in the EFSF was immediately necessary since no country was applying for a new bailout now.
Germany, whose support as Europe's largest economy is essential to any deal, is reluctant to back an increase in the EFSF unless other euro zone member states sign up to measures to cut spending and make their economies more competitive.
Financial markets were calmer in the first few weeks of this year, but renewed concerns have emerged in the past 10 days, after EU leaders failed to make progress at a summit on February 4.
Yields on
Portugal's 10-year bonds set new record highs last week at 7.65 percent on a perceived lack of progress toward resolving the bloc's crisis. Portugal is regarded as the next likely candidate for a bailout.
"Concerns about a European debt rescue plan will remain in place until March, and that is definitely a risk for the euro," said Sven Schubert, currency strategist at Credit Suisse in Zurich.
MORE COMPETITIVENESS
The "competitiveness pact," backed by France, envisages higher retirement ages, national laws to cap debt, a common corporate tax base and an end to indexing wages to inflation.
But other
euro zone countries complain the Franco-German proposal has not even been properly presented to them and while no one opposes the idea of becoming more competitive, many disagree with elements of the pact reported in the press.
"We are in complete ignorance of the elements of this pact. It will not be part of today's meeting, but for the European Council on March 11," Eurogroup President Jean-Claude Juncker told reporters before the meeting.
"It will have to be determined then what the additional value is of such a pact."
At the start of their meeting, the ministers agreed to recommend that Belgium's Peter Praet be nominated to the executive board of the European Central Bank over his Slovak rival Elena Kohutikova, an EU source told Reuters.
Later on Monday euro zone ministers and ECB President Jean-Claude Trichet will be joined by ministers from the 10 non-euro members of the European Union to discuss the European Stability Mechanism, which is to take over crisis resolution from mid-2013.
A euro zone source taking part in the preparations for the meeting said the European Commission had proposed that the size of the ESM should be 500 billion euros for the support of solvent countries with liquidity problems.
But several euro zone sources said there was no agreement yet on the Commission proposal.