New powers debated for eurozone fund
Senior French officials said they backed the plan, which would have the fund -- the European financial stability facility (EFSF) -- take over from the European Central Bank in vacuuming up distressed debt in order to lower borrowing costs for governments at risk of tipping into default.
France's backing gives impetus to a measure that is strongly supported by the ECB, which was reluctantly drawn into bond buying at the height of the crisis and is eager to relinquish that role. The idea also enjoys backing from the European Commission, the European Union's executive arm.
Overhauling the EFSF has moved to the top of the agenda since José Manuel Barroso, Commission president, last week challenged leaders to "reinforce" the facility with powers in order to contain the crisis. Mr Barroso set a tight deadline, calling for agreement by the next European summit in just over two weeks.
But Germany, the EFSF's biggest contributor, has been reluctant to back the plan, and on such an ambitious timeline. Angela Merkel, the German chancellor, has disparaged the notion of repeated tinkering with the EU's crisis defences. Instead, she has emphasised the need for stronger economic co-ordination among eurozone governments.
"If the discussion is about a further package of measures, it is above all important that we develop a complete strategy that must absolutely include closer economic co-ordination," Ms Merkel said on Saturday.
European officials say that Berlin is demanding that governments commit themselves to greater austerity measures -- particularly the EU's southern members -- in exchange for making changes to the EFSF. In order to support bond buying, Germany would probably require that governments whose bonds are targeted by the EFSF agree to strict conditions to reform finances, according to German officials.
Another proposal to be discussed at the finance ministers' meeting on Monday will be increasing the EFSF's lending capacity. Under current rules, the EFSF can raise the full €440bn from investors, but can lend only about €250bn of that amount, since it must keep billions in reserve in order to maintain a triple A rating from credit agencies. Analysts have argued that not enough funding is in the system if Spain were to need a bail-out.
In order to increase the fund's lending capacity and retain the triple A rating, Germany and other countries with sterling creditworthiness would have to step up their commitments to the fund. On Sunday, Wolfgang Schaüble, finance minister, suggested he was open to the idea.
However, he flatly rejected calls to increase the size of the fund. Although Belgium, in particular, has championed the idea, it would be a non-starter with German taxpayers, who are already enraged by the cost of the bail-outs.