EURO ZONE finance ministers have struck a long-awaited deal to reinforce their anti-crisis “firewall”, temporarily combining their bailout funds to give a total lending capacity of €800 billion.
The agreement is designed to quell market doubt about Europe’s capacity to overcome the debt crisis and to persuade the International Monetary Fund to boost its own firepower.
Underlying the decision is lingering concern about Italy and Spain, whose government introduced a package of austerity measures worth €27 billion in its 2012 budget yesterday.
The agreement ends more than a year of division over the size of the permanent European Stability Mechanism (ESM) bailout fund and its temporary predecessor, the European Financial Stability Facility (EFSF).
“I trust that today’s decision will pave the way for an increase of the IMF resources. I see this is a very significant and lasting decision,” said economics commissioner Olli Rehn.
Ahead of the IMF spring meeting in Washington in three weeks’ time, the fund’s chief Christine Lagarde said the European decision would “support the IMF’s efforts to increase its available resources for the benefit of all our members”.
The deal was made public first by Austrian minister Maria Fekter, angering euro chief Jean-Claude Juncker and prompting him to cancel a planned press conference.
Ms Fekter apologised, but her intervention lent a sense of disarray to the proceedings.
In the minutes before she briefed German-speaking journalists, Mr Juncker had complained to ministers about media leaks from their meetings.
He is understood to have expressed particular unhappiness that Spanish paper El País reported virtually all of the ministers’ private exchanges on Spain at their last gathering.
Not long afterwards, Mr Juncker read about Ms Fekter’s disclosure of the firewall deal on his mobile phone.
He cut short the meeting, leaving no time to discuss the allocation of a seat on the executive board of the European Central Bank.
“The decision was not possible. The decision is delayed till mid-April,” Mr Juncker told reporters.
“There was no point in holding a press conference because the Austrian finance minister announced the deal already as the meeting was going on.”
The agreement will see the €500 billion ESM operate alongside the EFSF until mid-2013, and euro zone countries will expedite the payment of capital to the ESM to ramp up its immediately lending capacity.
Germany opposed running the two funds concurrently and wanted the ESM’s firepower to be reduced by the €200 billion EFSF commitment for Ireland, Portugal and Greece. The €200 billion will now be included in the firewall but €240 billion in unspent capacity will not. Also in the mix is the €49 billion that the European Commission’s rescue fund – the European Financial Stability Mechanism – has already paid to Ireland, Greece and Portugal.
A further €53 billion in bilateral loans to Greece under its first bailout is also included.
“All together the euro area is mobilising an overall firewall of approximately €800 billion, more than $1 trillion,” the euro group ministers said in a statement.
German minister Wolfgang Schäuble mentioned the €800 billion figure on Wednesday night, a declaration taken to mean Berlin would accept that figure after resisting such an increase for months.
“That seems to me to be getting into the ballpark of what’s required,” Minister for Finance Michael Noonan said before the meeting. A €500 billion firewall was “insufficient” and €700 billion was still “too low”, he added.
“The market reaction . . . is to the dollar amounts. So anything that gets you $1 trillion looks like a serious firewall.
“If we get to or beyond[€800 billion], then — [€800 billion] – denominated in dollars – not only is it an enormous amount of money but it presents as a very serious firewall to ward off any attacks on the euro.”
