Merkel Succumbs To International Pressure As EU Raises Financial Firewall
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German Chancellor Angela Merkel has agreed to increase the firepower of the eurozone’s emergency rescue funds, despite a history of strong opposition and resistance to the fund’s expansion plans.
According to German newspaper Der Spiegel, Merkel and German finance minister Wolfgang Schaeuble have abandoned their resistance to combining the two eurozone rescue funds, despite opposition from German voters that it would increase the country’s liability.
German Chancellor Angela Merkel has agreed to increase the firepower of the eurozone’s emergency rescue funds, despite a history of strong opposition and resistance to the fund’s expansion plans.
According to German newspaper Der Spiegel, Merkel and German finance minister Wolfgang Schaeuble have abandoned their resistance to combining the two eurozone rescue funds, despite opposition from German voters that it would increase the country’s liability.
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German officials said Merkel was prepared to yield to international pressure and combine the firepower of the €440bn European Financial Stability Facility (EFSF) and its permanent replacement, the €500bn European Stability Mechanism (ESM).
In an interview with German magazine Focus, the EFSF chief Klaus Regling said a bigger euro firewall would calm markets, as a majority of market participants do not believe the crisis is over and expect further downgrades this year.
Agreeing with Regling, Merkel said last Friday that she believed the eurozone’s sovereign debt crisis was ‘not over’ and the current relative calm was merely a ‘phase’.
Merkel added, as reported by the AFP:
[quote] Concerning the development of the crisis, we cannot say today that it is over, we still find ourselves in one of the various phases of the crisis. We find ourselves at an absolutely decisive point. [/quote]Related News: Merkel: Europe in Worst Crisis Since WW2
Their comments contradict views of various leaders in recent weeks. Just last week, chief of International Monetary Fund Christine Lagarde said the world economy was already showing signs of recovery.
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With the push from EU executives, the temporary increase in the eurozone’s financial firewall is expected to increase to €940 billion. However, both the EFSF and ESM currently have a combined lending ceiling of €500 billion, which means that in the 12 months from July, the funds would not be able to lend beyond that limit.
Eurozone finance ministers are expected to meet in Copenhagen on Friday to agree to combine to bailout funds, or significantly increase their capabilities.
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