Euro zone finance chiefs look to settle bailout funds row


EURO ZONE finance ministers hope to settle a year-long dispute over the size of their bailout funds at a meeting this morning, an agreement designed to boost confidence in their power to overcome the debt crisis.

Minister for Finance Michael Noonan is expected to brief his euro zone counterparts on the deal to defer payment of a €3.06 billion Anglo Irish Bank promissory note.

While no formal debate is scheduled on the Government’s wider campaign to restructure Anglo’s debt, European officials believe there may be an opportunity this summer once the debate over the rescue funds is closed.

The ministers will review the second Greek bailout and will assess the situation in Spain, whose government produces its 2012 budget today.

In the clearest sign yet of a deal to boost the funds, German finance minister Wolfgang Schäuble told an audience in Copenhagen last night that he expects the “firewall” would increase to €800 billion from about €500 billion.

This sum is greater than the €700 billion Berlin had signalled it would support but smaller than the €1 trillion sought by France, member states including Ireland and other European and international institutions.

Germany held out for many months against a radical increase in the size of the rescue net.

In the face of signals from global powers that they would not increase the lending resources of the International Monetary Fund without reciprocal moves by Europe, German chancellor Angela Merkel reluctantly accepted the principle of an increase in recent weeks.

The basic idea is to combine the temporary €440 billion European Financial Stability Facility (EFSF) with the permanent €500 billion European Stability Mechanism (ESM), which comes into operation in July. Germany was against running the two funds concurrently and wanted the ESM’s €500 billion firepower to be reduced by the €200 billion value of the aid already committed by the EFSF for Ireland, Portugal and Greece.

Berlin has now reversed that position. “We have €500 billion in fresh money available, together with the programmes already agreed for Ireland, Portugal and the new programme for Greece. It is about €800 billion,” Mr Schäuble said at the University of Copenhagen.

Hours earlier, however, his French counterpart, François Baroin, said Paris wanted to expand the funds to €1 trillion, a stance backed this week by the Organisation for Economic Co-operation and Development. “That is the position I will defend in the name of France,” said Mr Baroin. “The bigger the firewall, the less risk weaker countries will be attacked by the markets.”

In spite of lingering public divisions, euro zone officials remain confident a deal can be done today.

They are under pressure to do so because the Copenhagen meeting is the final scheduled gathering of ministers before the IMF reviews its lending capacity next month. To appease any doubters, the ministers are likely to hold the remaining €240 billion capacity in the EFSF in reserve in case of exceptional circumstances.

They are also likely to speed up the process under which euro zone countries release €80 billion in paid-in capital to the ESM to support any lending operations it may have to make.

“The paid-in capital of the ESM will be made available more quickly than initially foreseen in the ESM Treaty,” according to a draft communique.

Euro zone ministers will also make an appointment to the ECB executive board, with Luxembourg central bank governor Yves Mersch the favourite.

The ministers from the 27 EU countries will meet after the euro zone meeting.