Trillion euro boost agreed for bailouts as eurozone recession is forecast


Chancellor Angela Merkel yesterday revealed details of the rescue package to be agreed by European Union leaders on Wednesday, including plans to slash Greece's debt by up to 60 per cent and steps to boost the single currency bailout fund by €1 trillion (£871bn).

The German leader released details of the package to party leaders after her ruling conservative party announced that, in an extraordinary move, parliament would be called to approve the new measures because of concern about runaway EU funding among ordinary voters.

Volker Kauder, the parliamentary leader of Ms Merkel's Christian Democratic Party (CDU), said the question of additional "leverage" for bailout funding had acquired "a fundamental meaning" which necessitated a full parliamentary vote.

Surveys show up to 80 per cent of Germans are opposed to EU bailout funds and Ms Merkel faced opposition from many within her own party when her government narrowly approved Germany's €211 billion contribution to the European Financial Stability Facility (EFSF) last month.

Tomorrow's Brussels summit will finalise details of a broad rescue package for the euro after eurozone leaders agreed measures to oblige banks to protect themselves against future losses and to increase the firepower of the bailout fund.

But it remained unclear how the EU would increase the EFSF by €1trn. One method is a plan to give the facility the option of providing partial guarantees to investors and banks that lend to troubled eurozone governments. The other is to seek greater funding via the International Monetary Fund. A combination of both is also under consideration.

Ms Merkel's announcement coincided with forecasts that the eurozone was in danger of tipping from mere stagnation into full-blown recession. Business surveys published yesterday showed many companies had contracted for the third month in a row as a result of waning confidence and declining orders.