Germans deal blow to Irish hopes on EU rescue fund

ATTEMPTS to reorganise the EU’s rescue fund were dealt a blow by the junior coalition partners in Angela Merkel’s government when they ruled out any changes as they fight to retain seats in pending regional elections.

The tough new stance by the Free Democratic Party is bad news for Ireland, which is hoping the interest rate on its bailout loan will be reduced and that loans could be used to buy back debt at a reduced rate.

Economics Commissioner Olli Rehn met the FDP leader Guido Westerwelle and party members in Berlin yesterday in an effort to have them change their new policy, but met with little success.

Mr Westerwelle, who is foreign minister and deputy chancellor, said after the meeting: “To discuss expanding the rescue fund today, when only 10% has been used, is not convincing”.

European Commission President Jose Manuel Barroso held a meeting last night with the German Chancellor to discuss the options and resolve tensions following Mr Barroso’s public unveiling of plans to make the fund more flexible before Germany had a chance to discuss them.

Finance experts from the European Commission and member states are struggling to make changes that can be agreed by EU leaders at their March summit at the latest and would leave them in a position where they are ahead of problems rather than reacting to crisis.

The IMF was the latest to state there was a need to expand the fund which can effectively lend just €250 billion.

While this is enough to help small countries under pressure, it would not be sufficient to help a larger economy like Spain.

It is now being acknowledged that charging countries like Ireland and Greece a high rate of interest on loans is making it more difficult for them to repay the money and militates against the kind of growth these countries need to overcome their debt problems.

One solution being explored is to lend countries money to buy back their debt on the secondary markets, where they are for sale at knock down prices as investors try to offload the risk.

Increasing the size of the guarantees to allow the current €440bn tobe fully utilised, or increasing the sum by up to three times as suggested by some, would require the parliaments of the eurozone countries to agree — something Ms Merkel could not achieve without the agreement of her coalition partners.