Decision on EU fund postponed

The leaders of the 17 euro zone countries have delayed a decision on whether to give their bailout funds more firepower until later in March, European officials said today.

Euro zone leaders were expected to meet on Friday afternoon to decide whether the currency union's bailout funds would be allowed to give more than €500 billion in loans.

The decision was highly anticipated as there are mounting concerns that the euro zone's safety nets - which have already bailed out Greece, Ireland and Portugal - are too weak to support large struggling countries such as Italy or Spain.

The European Commission,  the International Monetary Fund and several euro countries want the new, permanent bailout fund, the European Stability Mechanism, to run in parallel with its predecessor, the European Financial Stability Facility.

Under current plans, the EFSF would stop operating when the ESM comes into force in July and all its commitments to Greece, Ireland and Portugal would have to be subtracted from the ESM's €500 billion capacity. That would allow the ESM to give out only around €320 billion in loans.

Allowing the funds to run in parallel could take the overall lending capacity to around €750 billion. However, Germany, the euro zone's largest economy and the biggest contributor to both bailout funds, has so far resisted such a move. "The decision (on the bailout funds) is not ready to be taken yet," said one official.

Any increase in the funds' capacity would require parliamentary approval in most euro countries. Richer states in the euro zone, however, are especially reluctant to go back to their lawmakers for yet more money just after committing to a second massive rescue for Greece.

Because of that, European Council President Herman Van Rompuy decided not to call a special summit of euro zone leaders that had been planned for Friday afternoon, a second official said.

A decision on the bailout funds will be taken later in March, either at a meeting of euro zone finance ministers on March 12th or, if necessary, at an extra summit of euro leaders, the first official said.

The meeting of the 27 European Union leaders on Thursday and Friday will take place as scheduled.

Reuters/Bloomberg