January 16, 2011

German coalition split on increasing EU's bail-out fund

German coalition split on increasing EU's bail-out fund

Important members of Chancellor Angela Merkel's coalition in Germany are resisting plans for an increase in the EU's bail-out fund to protect Spain from contagion, complicating a crucial meeting of EU finance ministers on Monday.

German coalition split on increasing EU's bail-out fund
French President Nicolas Sarkozy and German Chancellor Angela Merkel. Photo: AFP
Guido Westerwelle, the vice-Chancellor and head of the FDP Free Democrats, said there was no justification for last week's call by Brussels for an urgent boost in the size and powers of the €440bn (£371bn) fund.
"Only a small part of the fund has been used, so there is no need to talk about increasing it," he said, adding that any further aid must come on stringent terms.
The FDP's finance spokesman, Otto Solms, said the party's parliamentary group would oppose an expansion of the fund, and warned that it must not become a "bad bank" by purchasing EMU bonds pre-emptively.
European Commission President José Manuel Barroso is worried the fund will run dry if Portugal needs a rescue, leaving too little to defend Spain. A leaked Commission document said a fresh pulse of the crisis was "unavoidable" in early 2011.
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