THE EUROPEAN Commission is pressing for a deal within weeks to bolster the euro zone bailout scheme, prompting a tentative signal of support from German chancellor Angela Merkel but resistance from France.
The drive to expand the mandate and lending capacity of the European Financial Stability Facility (EFSF) reflects frustration at EU leaders’ lack of progress in their efforts to assert control over the sovereign debt crisis.
The commission warned that the financial crisis “could have a lasting effect on potential growth” as its chief José Manuel Barroso opened a new round of policy co-ordination between the EU executive and the governments of member states.
“As regards the issue of financial stability, namely the EFSF, the commission states clearly . . . that we consider that its effective financing capacity must be reinforced and the scope of its activities widened,” he told reporters in Brussels.
“And in fact I see no reason why we could not take a decision on these matters no later than at the next European Council,” he said in reference to a summit scheduled for February 4th.
While EU leaders have been discussing for months how they might strengthen their response to the crisis, Mr Barroso’s comments mark a clear attempt to up the ante in the face of reluctance to take any radical new measures.
Agreement on the expansion of the EFSF has so far proved elusive, as EU leaders made the case that there was no requirement as of yet to boost its coffers.
When IMF chief Dominique Strauss-Kahn called last month for a tougher action and an expansion of the EFSF, for example, his intervention received a cool response from Germany and the Netherlands.
There were shades of that stance yesterday when Dr Merkel’s spokesman said it was neither useful nor necessary to discuss expanding the EFSF and made no sense to do so. Later, however, the chancellor said, “we will do whatever is necessary and everything will be discussed step by step”.
Dr Merkel discussed the crisis yesterday with Mr Strauss-Kahn. Among her government allies, however, the initiative from Brussels went down badly. “I would certainly expect significant resistance in the Bundestag if an extension of the rescue umbrella were to be suggested,” said Norbert Barthle, budget spokesman of Dr Merkel’s CDU party and its Bavarian sister party, the CSU.
A French government spokesman in Paris said the EFSF was large enough to meet requests, adding that its enlargement would not be on the agenda when finance ministers meet next week.
Although the EU authorities are quietly discussing a possible aid package for Portugal, the pressure on the country eased a little yesterday when it staged a successful auction of bonds worth €1.25 billion.
Mr Barroso is understood to have determined that the easing of pressure on Portugal presented an opportunity to push anew to reinforce the EFSF, as he is keen to disconnect pressure on that country and Spain from the effort to boost the fund.
The plans include an increase in its lending capacity. Measures to grant common euro zone guarantee over new bond issuance are not immediately in prospect.
