Germany under pressure to expand ESM bailout fund
GERMANY FACES pressure to expand Europe’s bailout fund as global powers press for a big increase in its firepower before they boost the resources of the International Monetary Fund.
Chancellor Angela Merkel is the last holdout against a stronger European Stability Mechanism (ESM) permanent rescue fund and her stance is set to come under fire at a meeting of G20 finance ministers and central bankers in Mexico City this weekend.
“The IMF should continue to play a constructive role in Europe but IMF resources cannot substitute for a strong and credible European firewall in response,” said Lael Brainard, undersecretary for international affairs at the US treasury department.
“I’m sure when Europe’s response becomes clear the G20 will be able to better assess IMF resources.” Other global powers such as China, Japan and Canada have a similar position.
The ESM question is centre stage following a deal this week to provide a second EU-IMF rescue package to Greece. The new bailout moved forward yesterday when Greek MPs voted to proceed with a bond swap designed to cut the country’s national debt by up to €107 billion. However, European Central Bank chief Mario Draghi told the Wall Street Journal that Greece remained a risk and that its leaders must demonstrate their readiness to execute the plan. “It’s hard to say if the crisis is over,” he said.
With EU leaders due in Brussels next week for their second summit of the year, Berlin insists there is no need to expand the ESM’s €500 billion lending capacity before the fund starts its operations this summer.
European officials believe this is but a bargaining position to maximise the chancellor’s hand. She is also perceived to be leaving nothing to chance ahead of a Bundestag decision next Monday on the second Greek bailout.
Germany is by far the biggest ESM contributor so Berlin would pay more than any other country to increase its lending capacity.
Dr Merkel’s stance is at odds with most other European and global powers, who see a bigger fund and a boost to the IMF as prerequisites for a definitive settlement of the euro zone debt crisis.
On the table for months is a proposal to combine the remaining €250 billion in the European Financial Stability Facility temporary bailout fund with the ESM, but Ms Merkel does not want the funds to operate simultaneously.