This past weekend, Germany said it was willing to back a temporary increase in euro-zone funds to help prevent the debt crisis in the bloc’s periphery from jumping to other member states, according to a report Monday. According to Angel Gurria, secretary-general of the OECD:
Euro-zone finance ministers meeting this week need to boost the firepower of the region’s rescue funds to at least 1 trillion euros ($1.34 trillion) in order to restore market confidence
Keeping the Eurozone financially stable amid “daunting” challenges will require a bailout fund of at least 1 trillion euros, or $1.3 trillion — “the mother of all firewalls” — the head of the Organization for Economic Cooperation and Development said.
The 17-nation zone that uses the euro is “not out of the woods” despite signs of steadiness in the financial markets and the smooth restructuring of the Greek debt.
Speaking in advance of a scheduled Friday meeting of EU finance ministers in Sweden, Gurria said the currency cooperative needs a “credible” rescue fund at the ready in order to ensure market confidence and a full recovery in the struggling region. She further stated that promises and summits were all behind now, it was time for action. More or less put up or shut up time.
The present $664-billion commitments to the Emergency Stabilization Mechanism won’t do the trick, he said along with EU Commissioner Olli Rehn.
“We still cannot draw too much comfort from these signs of healing,” Gurria said.
How many times have we seen conditions ease only for the crisis to return?
Debt levels in Europe remain high amid a backdrop of frail banks, austerity programs, high unemployment and weak consumer and investor confidence. Some nations’ risk spreads are at unsustainable levels and “have showed signs of creeping up in the last few days,” Gurria said.
A larger ESFS or ESM fund would give governments the breathing room to focus on jump-starting growth and competitiveness and would restore trust in the EU. Promises and plans have been changed and broken too many times in the recent past.
On Monday, Germany – the largest economy and the driving force of the EU indicated that it would back a firewall of 700 billion euros, or $929 billion, far cry from the OECD’s call for a trillion euro.