THE OECD has called for an expansion of Europe’s firewall beyond the €700 billion acceptable to Germany.

Berlin has reluctantly signalled, after months of resistance, that it accepts the principle of running the existing temporary rescue fund, the European Financial Stability Facility, concurrently with the permanent fund, the European Stability Mechanism, once it comes into force in July.

This will bring the funding available to fight the crisis to some €700 billion, but the Organisation for Economic Co-operation and Development wants Europe to go further still.

The International Monetary Fund also wants to see an expansion of the European fund before committing its own members’ resources.

The firewall question has been outstanding since last year when divisions between EU leaders led them to postpone final talks on an increase until this month. The failure to resolve tensions before the EU summit last month led the leaders to send the matter on to finance ministers, who gather in Copenhagen on Friday for two days of talks on the debt crisis.

The EU authorities still anticipate that the decisions taken in Copenhagen will be sufficient to persuade the IMF to increase its lending capacity as early as next month.

In a new report published yesterday, however, the OECD suggested a euro zone firewall in excess of €1 trillion may be required to send a credible signal to markets that Europe has the power to overcome the crisis.

Germany has baulked at the figures, arguing in recent weeks that the easing of the crisis diminishes any need to expand the bailout funds.

However, the OECD secretary general Ángel Gurría said it was important for the public authorities to overshoot expectations when dealing with markets.

“The ‘mother of all firewalls’ should be in place – strong enough and broad enough to ensure that it does not need to be used,” he said in Brussels.

The situation in the euro zone has stabilised in the wake of the second Greek bailout this month and a €1 trillion bank loan from the European Central Bank, but markets remain concerned about the fragility of Spain’s public finances.

“The European firewalls should be expanded further and made more credible to restore confidence. To ease market tensions, the funds should be available on a scale sufficient to withstand possible future requests for financial assistance,” the OECD said in its 2012 euro zone economic survey.

“These possible needs could include estimated refinancing needs of vulnerable euro area countries of over €1 trillion over the coming two years and contributions to the recapitalisation of euro area banks. Although it is unclear that funds on this scale would ever need to be drawn down, the availability of credible firewalls may enhance confidence.

“Ultimately, the scale and form of funds needed will depend on how confidence returns, as well as economic and financial developments.”