Germany resists calls for boost to EU firewall
(BRUSSELS) - Germany, the European Union powerhouse and paymaster, will face intense pressure at a Brussels summit next week to accept a boost to a 500-billion-euro firewall intended to keep the eurozone debt crisis from spreading.
Rattled European partners, the overstretched International Monetary Fund and even US President Barack Obama have urged Berlin to accept ramping up the European Financial Stability Facility and its planned successor the European Stability Mechanism.
The EFSF alone, which started off with lending power of 440 billion euros ($585 billion), is thought to have 250 billion euros left following rescues of Portugal and Ireland.
Amid fears the fund would not have enough firepower if a big economy such as Italy were to require saving, EU leaders agreed to replace it with a permanent crisis fund, the ESM, later this year.
Beefing up the firewall has long been on the agenda in Brussels for the March 1 and 2 summit.
Most European leaders would like to see a combined EFSF and ESM armed with 750 billion euros while Berlin says the current amount tabled, 500 billion euros, is enough.
"The position of the German government has not changed: it does not see any reason to increase the size of the European Stability Mechanism for the time being," a German government spokesman said Wednesday.
But the pressure on Germany is huge leaving the government of Chancellor Angela Merkel more isolated than ever on the issue.
Critics believe the boost is especially necessary to convince the IMF to step up significantly the latest bailout for Greece agreed in the early hours of Tuesday morning.
If Germany budges, the argument goes, other non-European countries would fork out further to fund the IMF and indirectly help stabilise the eurozone.
IMF chief Christine Lagarde has been campaigning hard to drum up contributions from countries like the US, Japan and China, but has so far only met calls that the eurozone members must first help themselves.
In an editorial published in the Financial Times on Thursday British finance minister George Osborne and Japanese counterpart Jun Azumi warned that "IMF resources cannot be a substitute for further steps by the eurozone to support its currency."
They said the eurozone must do everything to increase the size of its firewall "so that markets can be reassured that it can respond to any eventuality".
In Brussels EU Economy Commissioner Olli Rehn stressed that there was a clear need to strengthen the firewall and that "reinforcement is indeed one part of the overall package".
But despite all the pressure, a diplomat who spoke to AFP doubted whether Germany would be ready to change its stance in time for the summit next week.
The Bundestag on Monday votes on the second bailout of Greece with several lawmakers firmly opposed, no longer trusting Athens to meet its commitments.
Germany has already committed 400 billion euros to the ESM and the EFSF and according to a government source, Germany no longer sees reinforcing the firewall as an emergency.
Thanks to action taken by the European Central Bank, financial pressure has eased on larger eurozone nations Italy and Spain with their borrowing prices falling from unsustainable levels reached late last year.
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