EU finance ministers have agreed to a firewall that was less than the bazooka many said is needed to protect the euro.
With Germany and Finland acting as a brake on the desire of many to agree an €800bn fund, they agreed on a €500m fund for the European Stability Mechanism which will come into force in July.
Many had hoped that the €240bn that remains in the EFSF fund would be added to the ESM or at least be allowed to exist alongside it.
However, the money will just be available until mid-2013 as a top-up to the new fund in case of need.
The money, €200bn already used from this fund for the Irish and Portuguese, will be counted as part of the firewall, totalling €700bn.
In addition, the €102bn lent to Greece is also being included in the total to give a grand total of €800bn, approaching the €1trn called for by most countries, including France and international bodies such as the OECD.
France wanted to go further, with French finance minister Francois Baroin calling for the fund to be €1trn, saying that it was like the nuclear option in military planning. “It’s there for dissuasion, not to be used.”
In the meantime, the German media accused German finance minister Wolfgang Schäuble and chancellor Angela Merkel of doing a U-turn on promises not to agree to such a big firewall or to running the two funds together, even for a time. “Your red lines have become shifting sand,” leader of the Social Democratic party, Frank-Waltr Steinmeier, told the Bundestag.
The leader of the Liberal group in the European Parliament, Guy Verhofstadt, said the decision will not provide the long-term stability to bond markets if larger eurozone countries get into difficulties.
“National finance ministers today have repeated the same mistake as in the past by failing to create a permanent firewall, but rather just another expensive fire extinguisher that does not protect the bigger EU economies from contagion”, he said.
© Irish Examiner Ltd. All rights reserved