New bailout fund 'to increase to 1 trillion euros'

 

The eurozone bailout fund will see its firepower increased to more than 1 trillion euros (£869 billion) to enable it to contain the Eurozone debt turmoil, German government sources said today.

Eurozone governments hope the European Financial Stability Fund, or EFSF, will be able to protect countries like Italy and Spain from being engulfed in the debt crisis.

To do that, however, it needs to be bigger or see its lending powers magnified.

Frank-Walter Steinmeier, parliamentary leader of the opposition Social Democrats, and Greens leaders Cem Oezdemir and Juergen Trittin said chancellor Angela Merkel told them that the EFSF's lending powers will be boosted significantly.

"There will be a leveraging of the EFSF. It is clear that this leveraging will be around a level beyond one billion (euro)," Mr Trittin said.

That would be achieved through a combination of measures. The fund would insure investors against a percentage of possible losses on eurozone government bonds and the plan also involves the participation of outside organisations such as sovereign wealth funds and the International Monetary Fund.

The chancellor briefed MPs about the progress of the eurozone rescue plans following the weekend's EU summit.

Because of the move's significance, members of Ms Merkel's party proposed that the change receive full parliamentary approval on Wednesday - although it would have been enough for the parliament's budget committee to approve the plan.

Volker Kauder, the parliamentary leader of Ms Merkel's conservative bloc, said the decision to seek a vote was "nothing extraordinary" because "questions of fundamental significance must be decided in parliament."

Beefing up the bailout fund is one part of a three-pronged eurozone plan to solve the crisis.

The other two parts are reducing Greece's debt burden so the country eventually can stand on its own and forcing banks to raise more money so they can take losses on the Greek debt and ride out the financial storm that will entail.

Getting Greece's private bondholders to take deeper losses to lighten the country's deb load is proving particularly difficult. Experts agree that Greece needs to write off more of its debt if it is ever to make it out of its debt hole. But many also say such a deal with private creditors needs to be voluntary. Imposing sharp losses against the banks' will could trigger massive bond insurance payments that could cause panic on financial markets.

While European governments finalise their comprehensive plan, the European Central Bank has been taking on the role of fire-fighter by buying the bonds of financially weakened governments on the open market. That keeps the bond prices up and the rates down, allowing the countries to borrow on financial markets at lower rates than they otherwise could.

French Finance Minister Francois Baroin said France, in a bid to "avoid tensions," has agreed to abandon its push to turn the EFSF into a sort of bank that would give it access to the ECB's unlimited source of money. The idea clashes with German traditions of economic management and fears of printing money to pay for the governments' debt.

"We know that the Germans don't want this," he said.

Differences between Germany and France have been blamed in part for the failure of talks last week and an EU summit on Sunday to produce a comprehensive new plan to stem the eurozone's debt crisis.

AP

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Account Director - Tech Startup - Direct Your Own Career Path

£25000 - £40000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Telephone Sales Advisor - OTE £35,000

£18000 - £35000 per annum: Recruitment Genius: A Telephone Sales Advisor is re...

Recruitment Genius: Appointment Maker - OTE £20,000

£14000 - £20000 per annum: Recruitment Genius: An office based Appointment Mak...

Recruitment Genius: Healthcare Assistant

£7 per hour: Recruitment Genius: This provider of care services is looking for...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent