Amid Spain concerns, France pushes trillion-euro debt fund
(BRUSSELS) - Eurozone finance ministers aim to boost their debt rescue fund on Friday but France split with Germany by calling for a trillion-euro firewall amid renewed concerns about Spain's fiscal health.
After months of fraught negotiations and international pressure, the ministers gather in Copenhagen hoping to set up a firewall big enough to keep speculators at bay following bailouts of Greece, Ireland and Portugal.
The Group of 20 leading economies and the IMF have warned that they would offer help to the eurozone only if the 17-nation bloc builds up its rescue fund.
French Finance Minister Francois Baroin called for a trillion-euro ($1.3 trillion) fund, days after the Organisation for Economic Cooperation and Development (OECD) pressed for a "mother of all firewalls" of similar size.
"The firewall, it's a little like the nuclear option in military planning, it's there for dissuasion, not to be used," Baroin said on BFM Business radio, although Germany has spoken only of a possible increase to 700 billion euros.
"We naturally want that it to be as high as possible," he said, because "the higher the firewall, the less is the risk fragile countries will come under attack on the markets, by speculators at least."
Germany, the biggest contributor to the bailouts, finally dropped its resistance to any increase to the size of the rescue funds this week.
Berlin indicated it would agree to combine the future permanent fund, the 500-billion-euro European Stability Mechanism (ESM), with the sums from the temporary European Financial Stability Facility (EFSF) already committed to the three bailed out nations.
This would give the eurozone 700 billion euros on paper, but in reality it would have 500 billion euros on hand to help other nations since the rest is already slated for Greece, Ireland and Portugal.
Another suggestion has been to keep the EFSF active, which would give the eurozone another 240 billion in available rescue funds, or around 940 billion euros.
Eurozone officials, seeking a compromise, are proposing a formula that would give the bloc 940 billion euros for one year, sources close to the negotiations told AFP.
The fund would be reviewed in the summer of 2013, and "if there is no need to keep this system, we would return to around 700 billion euros," one of the sources said.
"It is not certain that the Germans will accept this option for the first year. They appear to favour the minimal solution from the start," the source added.
Spain's fiscal plight has added urgency to a final agreement on the firewall as Madrid needs to rein in a higher-than-expected public deficit.
The prospect of further cuts inspired a 24-hour strike on Thursday as Spaniards protested a new law facilitating lay-offs.
The chief economist at leading financial group Citi has warned that Spain will likely need emergency help from international lenders this year to shore up its banks and public finances, a prediction rejected by eurozone officials.
After announcing a public deficit of 8.5 percent in 2011, Spain agreed with EU leaders this month to cut the shortfall to 5.3 percent of gross domestic product this year -- still well above the previous target of 4.4 percent.
The conservative government, which took power from the socialists late last year, will unveil its budget on Friday and can expect a thorough examination from eurozone partners.
The eurozone ministers, who meet with the ministers of the European Union's 10 other non-euro nations later Friday and on Saturday, will also need to pick a new member of the European Central Bank's executive board.
Luxembourg's Yves Mersch is favourite to win the seat.
The nomination process is part of hard bargaining within the eurozone where three other jobs, including that of head of the Eurogroup of finance ministers, are at stake.
German Finance Minister Wolfgang Schaeuble is the frontrunner to replace Luxembourg Prime Minister Jean-Claude Juncker, who has presided over the group of eurozone finance ministers since its creation in 2005.
But no immediate decision is expected, with Europe's southern nations reluctant to give the post to a German, a diplomat said.
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