EUROPEAN LEADERS are coalescing around a plan to give the euro zone’s €440 billion bailout fund new powers to buy bonds of besieged economies, a move that officials say will be debated by finance ministers at the monthly Eurogroup meeting in Brussels today.
French officials backed the plan, which would have the fund, the European Financial Stability Facility (EFSF), take over from the European Central Bank in vacuuming up distressed debt to lower borrowing costs for governments at risk of tipping into default.
France’s backing gives impetus to a measure that is strongly supported by the ECB, which was reluctantly drawn into bond buying at the height of the crisis and is eager to relinquish that role. The idea also enjoys backing from the European Commission, the European Union’s executive arm.
Overhauling the EFSF has moved to the top of the agenda since José Manuel Barroso, commission president, last week challenged leaders to “reinforce” the facility with powers in order to contain the crisis. Mr Barroso set a tight deadline, calling for agreement by the next European summit in just over two weeks.
But Germany, the EFSF’s biggest contributor, has been reluctant to back the plan, and on such an ambitious timeline. Angela Merkel, the German chancellor, has disparaged the notion of repeated tinkering with the EU’s crisis defences. Instead, she has emphasised the need for stronger economic co-ordination among euro zone governments.
European officials say that Berlin is demanding that governments commit themselves to greater austerity measures – particularly the EU’s southern members – in exchange for making changes to the EFSF. In order to support bond buying, Germany would probably require that governments whose bonds are targeted by the EFSF agree to strict conditions to reform finances, according to German officials.
Another proposal to be discussed at the finance ministers’ meeting on Monday will be increasing the EFSF’s lending capacity. – (Copyright The Financial Times Limited 2011)
