Posted : 2012/03/29 12:19 pm
Finland's Olli Rehn has a reputation for being calm and cautious. The EU Commissioner for Economic and Financial Affairs has managed to remain composed and matter-of-fact even in his daily dealings with the staggering billions of the euro rescue fund.
And it was with the same calm ahead of Friday's EU finance ministers meeting in Copenhagen that Rehn called for the fund to be raised to 940 billion euros ($1,25 trillion) - 940,000,000,000 euros - a move which he says would help disperse persistent doubts over the eurozone's commitment and ability to deal with its debt crisis.
But the German government says it is setting the bar at 700 billion.
German Chancellor Angela Merkel has only just had her plan approved by parliament. In summer, she wants the European Financial Stability Facility (EFSF) to be combined with a permanent European Stability Mechanism (ESM) fund.
'The EFSF expires in the middle of next year,' says Merkel. 'But we see the 200 billion of the EFSF continuing in parallel with a further 500 billion of the ESM until the loans can be paid back.'
Berlin had initially rejected calls for anything more than a total of 500 billion euros, but there now seems to be a broad understanding among EU member states that global financial markets expect a clear sign from Brussels that it can overcome its trouble.
But EU ministers are finding it hard to agree on exactly how high the rescue fund - or 'firewall' - should be in future.
Guntram Wolff of the Brussels-based think tank, Bruegel, told DW it is crucial that EU finance ministers encourage trust. The size of the fund, says Wolff, will depend on which problems are to be tackled.
'Right now, it's all about sending a signal to international investors that we're serious about saving the euro,' said Wolff. 'It's clear that should a country like Spain need a bailout, we'll need a large sum of money quickly. And let's not even start to talk about Italy.'
Italy's debt currently stands at 1.8 trillion euros.
Impressing the markets
In the US, Treasury Secretary Timothy Geithner wants EU finance ministers to set up a financial 'firewall' higher than the one that is currently being discussed. The US recipe is seen as flushing unlimited amounts of money into the system. But Europe is reluctant to go down that path - with good reason, according to Guntram Wolff.
Wollf says an unlimited rescue fund would relieve debt-ridden countries of the incentive to push through economic reform programs.
'Both Spain and Italy need massive structural reforms to survive. That's why we need a certain amount of pressure from the markets,' Wolff said.
The finance ministers will need to strike a delicate balance between a firewall that is big enough to calm the markets and one that is able to keep up the pressure.
It has a lot to do with psychology, says Angel Gurria, secretary general of the Organization for Economic Cooperation and Development (OECD). Gurria says the eurozone needs a fund of 1 trillion euros to convince investors and financial markets that it is serious about dealing with the crisis.
'We need the mother of all firewalls. Strong enough, broad enough, deep enough, tall enough - just big,' Gurria said at a joint press conference with the EU Commissioner Olli Rehn earlier this week.
He says the bigger the fund, the less likely it will be needed.
A long way to go
But above all else Guntram Wolff believes the bloc needs real political union.
'We're currently seeing a broad and far reaching discussion that could fundamentally change our idea of national sovereignty and European cooperation,' said Wolff. 'But it's a debate that the EU finance ministers need to have, too.'
As far as Wolff is concerned, the EU's current fiscal pact is only a temporary solution.
'Interference in areas of national sovereignty is only being simulated. We still have strong resistance from national parliaments, including Germany’s,' said Wolff.
Budgets remain under individual national control and some people say this continues to stand in the way of any decisive action.
Two years into the crisis, German Chancellor Merkel needs to calm her coalition government. Speaking in parliament, Merkel said enlargement of the rescue fund would be a 'final step.'
After the restructuring of Greece's debt, and the signing of the current fiscal pact, Merkel said the new rescue fund would be a 'conclusive' one.
But EU Commissioner Olli Rehn has warned governments about misjudging Greece's progress.
'The lack of political unity will hamper efforts. The current speed of reform is not enough to get the budget back on track,' Rehn said in Brussels.
By agreeing to have the EFSF and the ESM merge into one large fund, Berlin hopes to pave the way for further money to help those member states still struggling with debt.
Merkel would like the International Monetary Fund (IMF) to create its own fund with around 500 billion euros to help the eurozone, with half of the money coming from non-EU countries. The German chancellor says this would serve as 'solid protection' for the eurozone.
But the IMF and the Group of 20 leading economies (G20) say they will only grant more aid if the euro bloc puts what it sees as a fair share on the table itself. And it remains unclear how the EU plans to do that.
Author: Bernd Riegert / ai
Editor: Zulfikar Abbany