Germany KOs bid to raise euro rescue guarantees
Germany shot down Monday moves to boost European debt rescue funding, bursting renewed optimism on markets amid global pressure for the eurozone to stave off recession.
As Greece languished without a date for the return of auditors blocking loans it needs to avoid default, European Union economic affairs commissioner Olli Rehn said the 440-billion-euro ($590 billion) European Financial Stability Facility should be given "greater strength."
Rehn's spokesman Amadeu Altafaj added that discussions among eurozone partners involved an "increase of the means at the EFSF's disposal," but German Finance Minister Wolfgang Schaeuble said there was no plan to boost the fund's actual size.
"We are giving it the tools so it can work if necessary," Schaeuble said. "Then we will use it effectively -- but we do not have the intention of boosting its volume," he underlined.
The blunt reaction of the eurozone's de facto paymaster -- and which would be called on to stump up much of any increased funding -- comes ahead of a parliamentary vote on Thursday on changes to the fund's operating scope agreed in July.
But it still dents momentum built up during intense debt diplomacy in Washington over the weekend.
There, the International Monetary Fund, the United States and other G20 economies pushed Europe to ring-fence bigger risks such as Italy -- and prevent the world slipping into a fresh downturn.
Indeed, European markets had risen during the day on the signs of a step-change in approach -- including bank share prices in anticipation the plan would include a hefty re-capitalisation component, notably in France.
Schaeuble's comments came after the European markets closed.
"We are thinking about the possibility of giving the EFSF greater leverage, to give it greater strength," Rehn had said in a German newspaper interview, in a marked change of pace.
Ten days ago in Poland, US Treasury Secretary Tim Geithner had urged eurozone finance ministers to ramp up their bailout fund, created after last year's 110-billion-euro Greek rescue.
Geithner was given short shrift by Schaeuble on that occasion.
Just eight of the 17 eurozone states have so far ratified the new powers decided at a July summit.
The existing fund has already been tapped by Ireland and Portugal, and is now needed by Greece for a second bailout for another 159 billion euros also agreed in principle at that summit.
Investors, meanwhile, really want to be convinced that Italy will not need help too.
In essence, Schaeuble's Germany opposes any increase in the size of the national government "guarantees" that give the EFSF its borrowing clout on commercial money markets.
However, Berlin could yet support fancy footwork enabling the fund to raise more "capital" to be directed at weak eurozone states in the interests of eurozone and wider financial stability.
Press reports and rumours given credence by analysts suggest the fund's reach, even on the same guarantees, could stretch ultimately as high as two-to-three trillion euros, depending on international involvement and especially the extent of European Central Bank backing.
While the European Commission refused to enter into a numbers game on the speculation, Austrian finance minister Maria Fekter said taxpayers would have to be spared further investment.
Analysts were already cautious before Schaeuble's intervention, RBC FX Strategy stressing: "It would be premature to think the solution is ready."
Slovak hardliners in the coalition government are also threatening new obstacles, demanding that countries deposit assets such as "state-held shares" as collateral.
The absence of a date when EU and IMF auditors will return to Athens, to recommend whether to release eight billion euros in blocked loans, means the issue may go to EU leaders at their next summit, on October 17 and 18.
The Greek authorities have yet to convince creditors that they can fix a "budgetary hole" in their public finances for 2011-12, or successfully implement a vast privatisation scheme demanded by bailout partners.
Greece's government has warned it will begin running short of cash in mid-October.
© 2011 AFP